ECN 506 Lecture Notes - Lecture 11: Market Maker
Document Summary
Equilibrium in a frictional labour markets does not coincide with the socially efficient unemployment rate ! Search externalities are not reflected in the wage setting mechanism ! this paper argues the opposite!- introduces a competitive search equilibrium!- this decentralized equilibrium is constrained efficient ! Environment competitive search equilibrium efficiency defining the cse discussion and conclusions. Features that are different from the diamond-mortensen-pissarides (dmp) model: drop the assumption that the match surplus is split ex post according to the nash sharing rule, instead, imagine the following: Firms propose and commit to a surplus splitting rule ex ante ! (i. e. , they post a wage offer) ! Workers can observe all these advertised wages ! Workers can condition their search strategies on firms" wage !offers ! Environment competitive search equilibrium efficiency defining the cse discussion and conclusions: alternatively, suppose that a market maker can separate the market into submarkets.
