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CEP discussion paper
Incentives in Competitive Search Equilibrium
Espen R. Moen and A Rosen
November 2007
Paper No' CEPDP0832:
Full Paper (pdf)

JEL Classification: E30; J30; J60

Tags: private information; incentives; search; unemployment; wage rigidity

This paper analyses the interaction between internal agency problems within firms and external search frictions when workers have private information. We show that the allocation of resources is determined by a modified Hosios Rule. We then analyze the effect of changes in the macro economic variables on the wage contract and the unemployment rate. We find that private information may increase the responsiveness of the unemployment rate to changes in productivity. The incentive power of the wage contracts is positively related to high productivity, low unemployment benefits and high search frictions.