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The Efficiency of Surplus Sharing in Sequential Labor and Goods Markets

Author

Listed:
  • Nicolas Petrosky-Nadeau

    (FRB San Francisco)

  • Etienne Wasmer

    (NYU AD)

  • Philippe Weil

    (Université Libre de Bruxelles)

Abstract

What is the optimal sharing of value added between consumers, producers, and labor? We study the constrained efficiency properties of a model with search frictional labor and goods markets. The social planner's allocation seeks to minimizes turnover costs in all markets. The decentralized allocation constrained efficient if Hosios conditions hold in each of the labor and goods markets. Deviations from Hosios in the labor market can lead to either over or under hiring, and either excess tightness or slack in the goods market. Deviations from Hosios in the goods market lead to either excess or insufficient tightness in the goods market, and always lead to lower labor market tightness. A calibration of the model to the US economy indicates restoring efficiency to the goods market would lower long unemployment and markups in the goods market.

Suggested Citation

  • Nicolas Petrosky-Nadeau & Etienne Wasmer & Philippe Weil, 2018. "The Efficiency of Surplus Sharing in Sequential Labor and Goods Markets," 2018 Meeting Papers 622, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:622
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    Cited by:

    1. Krolikowski, Pawel M. & McCallum, Andrew H., 2021. "Goods-market frictions and international trade," Journal of International Economics, Elsevier, vol. 129(C).
    2. Mangin, Sephorah & Julien, Benoît, 2021. "Efficiency in search and matching models: A generalized Hosios condition," Journal of Economic Theory, Elsevier, vol. 193(C).

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