Essays in Search Activity

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School of Business | Doctoral thesis (article-based) | Defence date: 2004-09-17
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[156] s.
Acta Universitatis oeconomicae Helsingiensis. A, 240
A conventional wisdom regarding search models is that multiple unemployment equilibrium may result if the matching function has increasing returns to scale. Essays one and two challenge this view in models where projects are homogenous but the job seekers and firms choose their search intensities (essay one), or the job seekers choose their search intensity but firms enter the market according to a zero-profit condition (essay two). Multiple equilibrium may in principle be caused by strategic complementarity or by common pool externality. It turns out that large returns to scale do not endanger uniqueness but rather guarantee it. In directed search models, the identity of stayers and movers has traditionally been just assumed. In essay three, searching and waiting decisions of buyers and sellers are considered. One-sided search is an evolutionarily stable outcome in an economy where each buyer and seller can either search or wait, and where the trading mechanism is auction or bargaining. If the relative number of buyers to sellers increases, the likelihood of all sellers wait and all buyers search -equilibrium increases relative to the likelihood of all buyers wait and all sellers search -equilibrium. In two-sided search, bargaining is more efficient than auction. One-sided search is more efficient than two-sided search. In one-sided search, it is more efficient if the larger pool searches and the smaller pool waits, than vice versa. We can often see that similar goods are sold for different prices, which violates the law of one price. Up to now, the models resulting in price distribution have assumed imperfect information on prices or ex ante heterogenous agents. In the model of essay four, we develop a search model where price distribution results even if all the sellers are symmetric, all the buyers are symmetric, the commodity is homogenous, and all the buyers know all the prices. The sellers are in locations and post prices simultaneously. The buyers observe the prices, and each buyer visits one location. The buyers act independently and employ symmetric mixed strategies. We show that when there are several sellers in a location, the Nash equilibrium features price dispersion, i.e. the sellers post different prices. The equilibrium strategy of the sellers is a non-atomic distribution. Essay five studies the supply of pollution permits in a labor market -style search model. We look at economic implications of allowing pollution permit trading between developed countries (DC) and less developed countries (LDC). The firms in a given region are similar, but he DC-firms are assumed to have clean technology, whereas the LDC-firms have dirty technology that emits a lot of carbon dioxide. We assume that each firm in both regions is first allocated a pollution cap. However, the permits can be transfered by making an investment which reduces the emission rate for a host firm (in an LDC-country) below the host's permit endowment. The market for these emissions-reducing projects have friction: finding a suitable partner for a project takes time. Once emission reductions are made and verified, the permits are traded in a frictionless permit market. Our model combines the search market for projects with a frictionless permit market to quantify the supply-side frictions in the market. We also decompose the effects of frictions into the effects of search friction, bargaining, and bilateralism. A calibration using previous cost estimates of reductions illustrates changes in cost savings and allocative implications
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Haaparanta, Pertti, professor
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