Block recursive equilibria for stochastic models of search on the job

Guido Menzio, Shouyong Shi

Research output: Contribution to journalArticlepeer-review

45 Scopus citations

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

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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