Block recursive equilibria for stochastic models of search on the job

Guido Menzio, Shouyong Shi

    Research output: Contribution to journalArticle

    Abstract

    We develop a general stochastic model of directed search on the job. Directed search allows us to focus on a Block Recursive Equilibrium (BRE) where agents' value functions, policy functions and market tightness do not depend on the distribution of workers over wages and unemployment. We formally prove existence of a BRE under various specifications of workers' preferences and contractual environments, including dynamic contracts and fixed-wage contracts. Solving a BRE is as easy as solving a representative agent model, in contrast to the analytical and computational difficulties in models of random search on the job.

    Original languageEnglish (US)
    Pages (from-to)1453-1494
    Number of pages42
    JournalJournal of Economic Theory
    Volume145
    Issue number4
    DOIs
    StatePublished - Jul 1 2010

    Fingerprint

    Stochastic model
    Recursive equilibrium
    On-the-job search
    Workers
    Directed search
    Dynamic contracts
    Policy function
    Wage contracts
    Wages
    Representative agent
    Value function
    Unemployment

    Keywords

    • Aggregate fluctuations
    • Directed search
    • Heterogeneity
    • On-the-job search

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Block recursive equilibria for stochastic models of search on the job. / Menzio, Guido; Shi, Shouyong.

    In: Journal of Economic Theory, Vol. 145, No. 4, 01.07.2010, p. 1453-1494.

    Research output: Contribution to journalArticle

    Menzio, Guido ; Shi, Shouyong. / Block recursive equilibria for stochastic models of search on the job. In: Journal of Economic Theory. 2010 ; Vol. 145, No. 4. pp. 1453-1494.
    @article{16248258224748db96aa44820a638d8f,
    title = "Block recursive equilibria for stochastic models of search on the job",
    abstract = "We develop a general stochastic model of directed search on the job. Directed search allows us to focus on a Block Recursive Equilibrium (BRE) where agents' value functions, policy functions and market tightness do not depend on the distribution of workers over wages and unemployment. We formally prove existence of a BRE under various specifications of workers' preferences and contractual environments, including dynamic contracts and fixed-wage contracts. Solving a BRE is as easy as solving a representative agent model, in contrast to the analytical and computational difficulties in models of random search on the job.",
    keywords = "Aggregate fluctuations, Directed search, Heterogeneity, On-the-job search",
    author = "Guido Menzio and Shouyong Shi",
    year = "2010",
    month = "7",
    day = "1",
    doi = "10.1016/j.jet.2009.10.016",
    language = "English (US)",
    volume = "145",
    pages = "1453--1494",
    journal = "Journal of Economic Theory",
    issn = "0022-0531",
    publisher = "Academic Press Inc.",
    number = "4",

    }

    TY - JOUR

    T1 - Block recursive equilibria for stochastic models of search on the job

    AU - Menzio, Guido

    AU - Shi, Shouyong

    PY - 2010/7/1

    Y1 - 2010/7/1

    N2 - We develop a general stochastic model of directed search on the job. Directed search allows us to focus on a Block Recursive Equilibrium (BRE) where agents' value functions, policy functions and market tightness do not depend on the distribution of workers over wages and unemployment. We formally prove existence of a BRE under various specifications of workers' preferences and contractual environments, including dynamic contracts and fixed-wage contracts. Solving a BRE is as easy as solving a representative agent model, in contrast to the analytical and computational difficulties in models of random search on the job.

    AB - We develop a general stochastic model of directed search on the job. Directed search allows us to focus on a Block Recursive Equilibrium (BRE) where agents' value functions, policy functions and market tightness do not depend on the distribution of workers over wages and unemployment. We formally prove existence of a BRE under various specifications of workers' preferences and contractual environments, including dynamic contracts and fixed-wage contracts. Solving a BRE is as easy as solving a representative agent model, in contrast to the analytical and computational difficulties in models of random search on the job.

    KW - Aggregate fluctuations

    KW - Directed search

    KW - Heterogeneity

    KW - On-the-job search

    UR - http://www.scopus.com/inward/record.url?scp=77953359874&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=77953359874&partnerID=8YFLogxK

    U2 - 10.1016/j.jet.2009.10.016

    DO - 10.1016/j.jet.2009.10.016

    M3 - Article

    VL - 145

    SP - 1453

    EP - 1494

    JO - Journal of Economic Theory

    JF - Journal of Economic Theory

    SN - 0022-0531

    IS - 4

    ER -