ECN 506 Lecture Notes - Lecture 9: Shimer College
Document Summary
Firm could achieve a value higher than vt by posting w : without restricting the function for w / w, there can be many equilibria ! Beliefs: one solution is to introduce a small measure of non-optimizing firms that post every feasible wage and analyze the limit of the equilibrium when this measure approaches zero !- Trembling hand type argument!- moen (1997) essentially does this by imagining that there are !market makers : another solution (shimer, 1996) is to impose restrictions on the beliefs out of the equilibrium (see shi, the new palgrave. The function : recall that workers choose to search in submarkets that yield !their maximum value, ut , so for any wage posted in equilibrium, !ut =b+ (cid:0) +p( (w))[et+1(w) ut+1] (cid:0) (1) : suppose the function must satisfy (1) even for wages not !posted in eqm. 1 !1for some wage offer, w , (1) might not hold with equality for any finite tightness.
