Basic Search Model

Question 1

Basic search model is _______ and _____

Answer 1

one-sided; random

Question 2

One-sided search model focuses on ______

Answer 2

workers’ search for job/ supply side

Question 3

One-sided search model takes ______ as exogenous

Answer 3

demand side

Question 4

One-sided search model is also called as _____

Answer 4

partial equilibrium model

Question 5

Random search model means ______

Answer 5

similar workers can be paid differently due to luck

Question 6

Environment

Time is _______, _____ and ________

Answer 6

discrete; infinite; normalised to 1 in each period

Question 7

Worker maximises ________

Answer 7

expected lifetime utility

Question 8

E[ summation of B^t*U(c_t) over t = 0 to infinity ]

Increasing B means HH values _______ more and so are more ______

Answer 8

future consumption; patient

Question 9

Assumptions

1) All individuals are in _______, that is, they are either ____ or ____
2) Individuals enjoy ______
3) no ______
4) no ______ search

Answer 9

labour force; employed; unemployed
no leisure
borrowing or lending
on-the-job

Question 10

Employed individual consume _____ and unemployed individual consume _______

Answer 10

wage; unemployment benefit

Question 11

For unemployed individuals:
Probability of finding a job = p
p is _____ and called ______ or _______
p can change due to _______ or _______

Answer 11

exogenous; arrival rate; job offer rate

technology; government intervention

Question 12

Wages are i.i.d

Can take on the value of ________ with ________

Answer 12

w_1 < w_2 < w_3 < … < w_N

probability pi_1, pi_2, pi_3, …, pi_N

Question 13

For employed individuals, probability of losing their job is s.
s is _____ and called the _______ or _______

Answer 13

exogenous; separation rate; layoff rate

Question 14

Solution to solving search model problem is _____

Answer 14

express the problem recursively

Question 15

Expected lifetime utility for employed is ___ and for unemployed is ____

Answer 15

V_e(w); V_u

Question 16

An employed individual consumes _____ in period 0 and next period, can be unemployed with probability __

Answer 16

w; s

Question 17

Expected utility of employed individual from period 1 is ______

Answer 17

B[sU(b) + (1 - s)U(w)]

Question 18

V_e(w) = ___

Answer 18

U(w) + B[sV_u + (1 - s)V_e(w)]

OR

(U(w) + BsV_u)/ [1 - B(1-s)]

Question 19

V_e(w) is ______ in w, provided ____

Answer 19

increasing; marginal utility from wage is positive

Question 20

s = 0
V_e(w) = \_\_\_\_

Answer 20

U(w)/ (1 - B)

Question 21

An unemployed individual consumes _____ and next period, can receive job offer with probability with ___

Answer 21

b (unemployment benefit); p

Question 22

V_u =

Answer 22

U(b) + B [ (psummation of pi_imax{V_e(w_i), V_u} over 1 to N) + (1 - p)*V_u ]

Question 23

Reservation wage is the wage at which an individual is ____

Answer 23

indifferent between working and not working

V_e(w*) = V_u