Entrepreneurship, outside options and constrained

Joao Galindo da Fonseca and Iain Snoddy
Additional contact information
Iain Snoddy: Vancouver School of Economics, University of British Columbia

No 2019-06, Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: The literature on search frictions has often adopted the assumption of free entry. In this paper we forgo of this restriction by proposing a more realistic framework in which individuals are constantly making the decision whether or not to open a firm. Namely, firms are created through endogenous choices and business-owners and workers are drawn from the same pool. We show that in this framework, the Nash bargaining parameter is crucial for internal dynamics. In particular, workers and business owners share the same outside-options. As a result, the wage is no longer unambiguously positively related to the value of unemployment. The constrained efficient solution to this model takes the same form as the standard search model implying the same form for the Hosios condition. However, at this efficient solution changes in the rate of unemployment are either exacerbated or muted conditional on the value of the match elasticity parameter.

Keywords: Search and matching; Entrepreneurship; Outside options; Constrained efficiency (search for similar items in EconPapers)
JEL-codes: D61 E24 J63 J64 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-dge, nep-ent, nep-gth and nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/1866/21923

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mtl:montde:2019-06

Access Statistics for this paper

More papers in Cahiers de recherche from Universite de Montreal, Departement de sciences economiques Contact information at EDIRC.
Bibliographic data for series maintained by Sharon BREWER ().