Wage Determination and Efficiency in Search Equilibrium

1982/04/01 by Peter A. Diamond, Peter Dia­mond · 5 citations
Economics, Econometrics and Finance · Business, Management and Accounting · #Economic theories and models #Consumer Market Behavior and Pricing #Game Theory and Voting Systems

paper · doi:10.2307/2297271

Abstract

Using a simple search technology and the Nash bargaining solution, the paper derives the steady state equilibrium negotiated wage as a function of the equilibrium unemployment and vacancy rates. For this wage, the lifetime expected present discounted value of earnings of a new worker is compared with the social marginal product of a new worker. These are not generally equal implying inefficient incentives for labour mobility.

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