March 2009

IZA DP No. 4097: Efficiency in a Search and Matching Model with Endogenous Participation

published in: Economics Letters, 2010, 106 (1), 48-50

We show that in a search/matching model with endogenous participation in which workers are heterogeneous with respect to market productivity, satisfying the Hosios rule leads to excessive vacancy creation. The reason is that the marginal worker does not internalize the effect of his or her participation on average productivity.