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 2010

    Keywords

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

    ASJC Scopus subject areas

    • Economics and Econometrics

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