@article{ef61699aeb9f4ae89ff5abc85a1cb59a,
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",
note = "Funding Information: ✩ We are grateful to an associate editor and an anonymous referee for comments. We have also received comments from participants at the Society for Economic Dynamics Meetings in New Orleans (2008), Cambridge (2008) and Istanbul (2009), the Society for the Advancement of Economic Theory (Ischia, Italy, 2009), the Yale Symposium on Search (2009), and at the macroeconomics seminars at Stanford, Penn State, Michigan, Georgetown, the Minneapolis FED, Philadelphia FED and Chicago FED. Discussions with Jim Albrecht, Pete Klenow, Narayana Kocherlakota, Dale Mortensen, Giuseppe Moscarini, Susan Vroman and Ronald Wolthoff led to significant improvements in the paper. Menzio gratefully acknowledges the financial support and the hospitality of the Hoover Institution. Shi gratefully acknowledges the financial support from the Bank of Canada Fellowship and from the Social Sciences and Humanities Research Council of Canada. The usual disclaimer applies.",
year = "2010",
month = jul,
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",
}