Basic Search Model Flashcards
Basic search model is _______ and _____
one-sided; random
One-sided search model focuses on ______
workers’ search for job/ supply side
One-sided search model takes ______ as exogenous
demand side
One-sided search model is also called as _____
partial equilibrium model
Random search model means ______
similar workers can be paid differently due to luck
Environment
Time is _______, _____ and ________
discrete; infinite; normalised to 1 in each period
Worker maximises ________
expected lifetime utility
E[ summation of B^t*U(c_t) over t = 0 to infinity ]
Increasing B means HH values _______ more and so are more ______
future consumption; patient
Assumptions
1) All individuals are in _______, that is, they are either ____ or ____
2) Individuals enjoy ______
3) no ______
4) no ______ search
labour force; employed; unemployed
no leisure
borrowing or lending
on-the-job
Employed individual consume _____ and unemployed individual consume _______
wage; unemployment benefit
For unemployed individuals:
Probability of finding a job = p
p is _____ and called ______ or _______
p can change due to _______ or _______
exogenous; arrival rate; job offer rate
technology; government intervention
Wages are i.i.d
Can take on the value of ________ with ________
w_1 < w_2 < w_3 < … < w_N
probability pi_1, pi_2, pi_3, …, pi_N
For employed individuals, probability of losing their job is s.
s is _____ and called the _______ or _______
exogenous; separation rate; layoff rate
Solution to solving search model problem is _____
express the problem recursively
Expected lifetime utility for employed is ___ and for unemployed is ____
V_e(w); V_u
An employed individual consumes _____ in period 0 and next period, can be unemployed with probability __
w; s
Expected utility of employed individual from period 1 is ______
B[sU(b) + (1 - s)U(w)]
V_e(w) = ___
U(w) + B[sV_u + (1 - s)V_e(w)]
OR
(U(w) + BsV_u)/ [1 - B(1-s)]
V_e(w) is ______ in w, provided ____
increasing; marginal utility from wage is positive
s = 0 V_e(w) = \_\_\_\_
U(w)/ (1 - B)
An unemployed individual consumes _____ and next period, can receive job offer with probability with ___
b (unemployment benefit); p
V_u =
U(b) + B [ (psummation of pi_imax{V_e(w_i), V_u} over 1 to N) + (1 - p)*V_u ]
Reservation wage is the wage at which an individual is ____
indifferent between working and not working
V_e(w*) = V_u
