Adverse Selection in Competitive Search Equilibrium

Guerrieri, Veronica; Shimer, Robert; Wright, Randall

doi:10.3386/w14915

Cited by 129 publications

(175 citation statements)

References 31 publications

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“…The respective OLS-regressions can be found in Tables 15 and 16 in the Appendix. 16 Using the respective predicted values for the expected number of (suitable) applicants coming through the PEA and the private market, we calculate the fraction of suitable applicants coming through the private market and the PEA. The predicted variables are then included into the probit regressions explaining the use of the PEA as search channel as shown in Table 8.…”

Section: Implicationmentioning

confidence: 99%

“…This results strongly support our theoretical comparative static predictions. 16 For the regressions on the number of (suitable) applicants through the private market we take all applicants at unregistered vacancies and for registered vacancies only those applicants, who did not come through the PEA. For the number of (suitable) applicants through the PEA we use the information on the number of (suitable) applicants at registered vacancies, who came through the PEA, and take the respective coefficients to predict the number of (suitable) applicants that all registered and unregistered firms.…”

Section: Implicationmentioning

confidence: 99%

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Understanding the Role of the Public Employment Agency

Holzner

Watanabe

2016

SSRN Journal

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Using a unique vacancy dataset, we find that the Public Employment Agency (PEA) distributes workers more evenly across vacancies than the private market. We investigate the implications of having such a market place by using a directed search model, where firms can search via the PEA or the private market. Lower coordination frictions reduce wage competition and enable registered firms to pay lower wages compared to the private market. This advantage has to be traded off against the negative selection of applicants coming through the PEA. We take these theoretical predictions to the data and find strong support for them.

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Section: Implicationmentioning

confidence: 99%

Section: Implicationmentioning

confidence: 99%

Understanding the Role of the Public Employment Agency

Holzner

Watanabe

2016

SSRN Journal

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“…The main purpose of this paper is to explore the asset pricing implications of asset shortages in an imperfect knowledge environment and so abstracts from these interesting issues. Similarly, Guerrieri and Shimer (2012) and Guerrieri, Shimer, and Wright (2010) show that adverse selection in asset markets can affect the distribution of safe assets and market liquidity.…”

Section: Discussionmentioning

confidence: 99%

Imperfect knowledge, liquidity and bubbles

Branch

2016

Journal of Economic Dynamics and Control

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This paper demonstrates that insufficient liquidity, in the form of a shortage of safe assets that are useful as collateral in facilitating exchange, can lead to substantial movements in asset prices. There is a single asset that yields a positive payoff stream and can be traded in a centralized market. The asset can also be used to facilitate exchange in decentralized, or over-the-counter, trade and if the asset is in sufficiently short supply the fundamental asset price includes a liquidity premium. Traders, though, have imperfect information about the future price at which the asset will trade and so they behave like a Bayesian who estimates an econometric forecasting model for the asset price that is updated in real-time via discounted least-squares. The paper has three primary results: first, a permanent decrease in the supply of safe assets can lead to a substantial over-shooting of the asset price from its fundamental value; second, an increase in collateral requirements can lead to a substantial overshooting of asset prices; third, when asset prices include a liquidity premium there can be recurrent bubbles and crashes that arise as endogenous responses to economic shocks.

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“…However, there are various ways to overcome this problem. For instance, Riley (1979) has restored existence by considering a reactive equilibrium concept that involves deviators anticipating their competitors' reaction, and Bisin and Gottardi (2006) show that the Rothschild-Stiglitz separating allocation is always a Walrasian equilibrium when agents are restricted to trade incentive-compatible consumption bundles contingent on the states h, l. Similarly, Guerrieri, Shimer, and Wright (2010) demonstrate that the nonexistence problem vanishes in a setting with capacity constraints or search frictions.…”

Section: A Market Foundationsmentioning

confidence: 99%

Competitive Markets without Commitment

Netzer

Scheuer

2010

Journal of Political Economy

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In the presence of a time-inconsistency problem with agency contracts, we show that competitive markets can implement allocations that Pareto-dominate those achieved by a benevolent government, and they induce more effort. We analyze a model with moral hazard and a two-sided lack of commitment. After agents have chosen their work, firms can modify contracts and agents can switch firms. If the ex post market outcome satisfies a weak notion of competitiveness and sufficiently separates individuals, it is Pareto superior to a government's allocation with a complete breakdown of incentives. Moreover, competitive markets without commitment implement more effort in equilibrium under general conditions. http://www.jstor.org/page/info/about/policies/terms.jsp JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to Journal of Political Economy.http://www.jstor.org 1079 [Journal of Political Economy, 2010, vol. 118, no. Competitive Markets without Commitment Nick Netzer University of Zurich Florian Scheuer Stanford UniversityIn the presence of a time-inconsistency problem with agency contracts, we show that competitive markets can implement allocations that Pareto-dominate those achieved by a benevolent government, and they induce more effort. We analyze a model with moral hazard and a two-sided lack of commitment. After agents have chosen their work, firms can modify contracts and agents can switch firms. If the ex post market outcome satisfies a weak notion of competitiveness and sufficiently separates individuals, it is Pareto superior to a government's allocation with a complete breakdown of incentives. Moreover, competitive markets without commitment implement more effort in equilibrium under general conditions.

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Adverse Selection in Competitive Search Equilibrium

Cited by 129 publications

References 31 publications

Understanding the Role of the Public Employment Agency

Understanding the Role of the Public Employment Agency

Imperfect knowledge, liquidity and bubbles

Competitive Markets without Commitment

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