logo   Edinburgh School of Economics

                 

 

 

Publications

 

Working Papers

 

Research Overview

 

Curriculum Vitae (short, long)

 

Job Search Study

 

Search and Matching Research Group (SaM)

 

∙ SaM Course Material: 2013, 2009  

 

 

Philipp Kircher

University of Edinburgh

 

 

E-Mail: philipp.kircher@ed.ac.uk

 

 

 

Research Interests:

Allocation of Resources in Markets with Search Frictions; Theory; Labor

 

 

Research Agenda: My work focusses mainly on labor markets, in particular on the sorting of firms and workers and on the effects of competition for labor on market outcomes. I also have side-interests in social preferences and disease transmission. Below I provide an overview how my work fits together. My particular interest in labor market sorting is also explained here and in my inaugural lecture.

 

 

Publications with short description

 


(1) Strategic Firms and Endogenous Consumer Emulation with Andrew Postlewaite, Quarterly Journal of Economics, 2008/123(2), pp. 621-661.

(technical appendix)

In a model of social learning, the better informed (wealthier) consumers get preferential service from firms because their consumption signals high firm-quality to other consumers.


(2) A Model of Money with Multilateral Matching with Manolis Galenianos, Journal of Monetary Economics, 2008, Vol. 55, pp. 1054-1066.

We characterize price dispersion and welfare in a monetary model with private information, and show that inflation acts as a regressive tax despite the fact that richer people hold more money: inflation acts as a tax on producers and induces scarcity that limits especially the consumption of the poorer individuals.


(3) Directed Search with Multiple Job Applications with Manolis Galenianos, Journal of Economic Theory, 2009, 114(2), pp. 445-471.

We analyze a directed search setting where workers can strategically apply for multiple jobs. Firms can make only one offer. We characterize the wages, applications, and (in)efficiencies.


(4) Efficiency of Simultaneous Search Journal of Political Economy, 2009, Vol. 117(5), pp. 861- 913.

We analyze simultaneous search: After firms advertize their wages, workers apply simultaneously for many jobs, and then get hired in a stable assignment. For small search costs the outcome is Walrasian, otherwise wage dispersion is necessary for optimality. Existing one-application models can be justified as analyzing each wage segment separately.


(5) Sorting vs Screening – Search Frictions and Competing Mechanisms with Jan Eeckhout, Journal of Economic Theory, 2010/145, 1354-1385.

The search technology is a crucial determinant in competing mechanisms settings where sellers want to induce buyers to search for them: When one assumes (as is often done in the search literature) that meetings of low types reduce the chances to meet with high types, then price posting and market separation arises. Otherwise, auctions in a joint market arise.


(6) Sorting and Decentralized Price Competition with Jan Eeckhout, Econometrica, 2010, Vol. 78(2), 539–574.

We analyze the impact of search frictions in the standard competitive assignment problem of Becker’s (1973). Assortative matching depends on a simple trade-off between complementarities in the match-value and complementarities in the search technology, measured by their elasticity of substitution. Root-supermodularity is needed to ensure sorting.



 


 

 

(9) On the Game-theoretic Foundations of Competitive Search Equilibrium with M. Galenianos, International Economic Review, 2012, Vol 53 (1), 1-21.

 

In large class of directed search games where a finite number of firms strategically competes to attract workers, we prove that a pure strategy Nash equilibrium exists. We provide novel characterization and uniqueness results, and show that the limit outcome as market size grows indeed micro-founds the standard specification for large directed search economies.


 

 

(10) On the Difference Between Social and Private Goods, with S. Ludwig and A. Sandroni, B.E. Journals of Theoretical Economics, (13/1).

We document experimentally a revealed preference for randomization for social goods that yield some payoff for another individual. This is inconsistent with standard models such as expected utility theory. We do not find such a tendency for private consumption goods (i.e., a coffee mug).


 (11) The U-Shapes of Occupational Mobility  Feb 2014 (first draft 06/08)  with Fane Groes and Iourii Manovskii. forthcoming in Review of Economic Studies

We show for Danish administrative data that occupational mobility is U-shaped: both low and high wage earners within an occupation have a particularly large probability of leaving. The former tend to switch “up” and the latter switch “down”. Exceptions are “rising” occupation where the low earners tend to leave. The facts can be reconciled in theories of vertical sorting.


 

Working Papers

 


 (12) An Equilibrium Model of the African HIV/AIDS Epidemic  Mar 2013 (first draft 12/09)  with J. Greenwood, C. Santos and M. Tertilt. R&R Econometrica.

An equilibrium search model of the Malawian HIV/AIDS epidemic is developed. Different sexual activities vary in their riskiness. When choosing a sexual activity, such as short-term sex without a condom, a person rationally considers its risk. A simulated version of the model is parameterized and used to think through possible countervailing effects of policies.


 (13) Matching and Sorting in a Global Economy  Apr 2013  with Gene Grossman and Elhanan Helpman.  R&R Journal of Political Economy

We explore the consequences of trade when both capital and labor are heterogeneous and output depends not only on the capital-labor ratio but also on the matched types. Trade induces across-sector sorting and within sector re-matching between capital and labor types, affecting both across and within-sector wage inequality and measured productivity.


 

 (14) Efficient Competition through Cheap Talk: Competing Auctions and Competitive Search without Ex-Ante Commitment Dec 2013 (first 12/11) with K. Kim. R&R Econometrica.

Commitment is not essential in directed search market games: Exactly the same efficient allocation where more productive firms have a better chance of hiring can be sustained when firms announce pure cheap talk messages followed by a suitable subsequent wage-formation stage. Results from existing models remain valid, even with worker heterogeneity.


 (15) Efficient Firm Dynamics in a Frictional Labor Market  Dec 2013 (first draft 02/10)  with Leo Kaas. R&R American Economic Review

Many recent contributions have analyzed large firms with decreasing marginal product in a search environment, and have highlighted large inefficiencies under short-term contracts. We show how to model long-term contracts in a tractable way even over the business cycle, document several factual implications, and show that this eliminates the inefficiencies.


 (16) Assortative Matching with Large Firms: Span of Control over More versus Better Workers  Nov 2011  with Jan Eeckhout.

We consider a matching model where firms can hire better and/or more workers. Sorting is driven by complementarities between firm and worker types, as well as between firm type and the number of workers. The conditions remain simple and tractable, and the framework is easily extended to study search frictions and the dispersion in wages and unemployment.


 

 Research Overview (click for publication list):

Most of my work has been concerned with two main questions. 1. How to combine search frictions (which are a sign that markets do not immediately clear) with a notion of competition for labor (which underlies most classical theory of labor); and 2. how heterogeneous firms match with heterogeneous workers. My approach has been and is still mostly theoretical, but some of my newer contributions use calibrated and estimated data, and look at model identification. The individual publications are listed below, and the actual publication include the important credit to my co-authors and to all the prior work.

Directed and Competitive Search: This literature attempts to combine search and competition in a market game where one side - e.g., firms or stores - first publicly post the terms of trade, and then agents from the other side - e.g., workers or consumers - observe the postings and decide where to go in order to trade. Only at this stage, after wages and visiting decisions have been made, the search frictions arise. For a general treatment of the usual micro-foundation, see (8).

One important consideration is the efficiency of the labor market. For example, should job creation be subsided on efficiency grounds? It is trivial to improve efficiency by eliminating the search frictions. Since this seems infeasible, the literature has focused on efficiency in a constrained sense that assumes that the search frictions cannot be avoided. Even constrained efficiency typically fails under random search because the wages are determined once the worker and firms are “locked into each other” and there is not direct competition from other firms. In directed search, firms compete with other firms in order to get workers to apply for their jobs. Also known as competitive search, this induces constrained efficiency not only along the well-explored dimension of firm entry, but also along the expansion and contraction of existing firms (even under decreasing returns to scale, see (15)). It still captures many stylized facts about firm dynamics and hiring in a tractable manner.

With heterogeneous workers efficiency carries over, but only if firms can post sufficiently complicated contracts. If workers differ in their utility of leisure, a simple wage suffices only if the presence of one worker prevents other workers from meeting the same firm (see (5)). Whether this is the case is important, as it determines whether the presence of low types affects the employment prospects of high types. If that is the case, firms do not want to attract several worker types at once, and better firms face an interesting problem: For the same amount of money they can attract few talented workers or many untalented workers. They do the former only if the complementarities in output outweigh the elasticity in terms of their matching probability (see (6)). A general characterization of the trade-off between more workers or better workers in a many-to-one matching environment is developed in work in progress (16). In such a setting changes to the national economy such as opening to international trade drive productive firms not only to expand employment but also to change the skill of their employees, affecting both measured productivity and within and across sector wage dispersion (see (13)).

When the market does not reach efficiency despite posting the terms of trade in a competitive search manner, there are two main reasons for this. The first reason is a missing market. This can be subtle in a search model: For example, when workers can apply for jobs at many firms, a “market” is missing if firms cannot trade the probability that workers apply to other firms (see (3)). Rather than creating more markets or more complicated contracts, efficiency is also restored if firms communicate with all their applicants after they received their applications (in the tradition of stable matchings, see (4)). The second reason is market power where few firms dominate the hiring market. Here unemployment benefits restore efficiency by improving employment at productive firms but decreasing employment overall, contrary to minimum wage effects (see (7)).

Partially directed search: Often workers (consumers) can only see some information, but cannot see exactly the terms of trade or the attractiveness of the firms. Efficient allocations can still be sustained even if workers observe only cheap-talk messages from the firms (14). Alternatively, consumers may only see where some other consumers purchased, in which case firms have an incentive to reward more informed (richer) consumers because they are a credible way of attracting additional customers to the firm (see (1)). Or workers might know about some random jobs before a costly search process that matches them competitively, which provides a tractable framework to discuss problems in identification of the sorting between workers and firms and in particular problems with current fixed effects estimation strategies (see (9)).

Re-sorting when worker ability changes: In (11) we find patterns that suggest that workers sort themselves into the occupations that are most suitable to their skills. Occupational mobility arises when workers ability changes, for example because they and their employer learn that the worker is better or worse than expected. This theory seems to be in account with the fact that both high-paid and low-paid workers are most likely to leave their occupations, with the former tending to change to better occupations while the latter tends to change to worse occupations.

 

Other work: (12) models the transmission of HIV/AIDS in an equilibrium context and discusses which kind of changes in partner choice and sexual behavior might offset policy interventions. New work in progress asks whether one can separately identify risk preferences and risk perceptions in insurance contexts. Finally, (10) shows experimentally that people’s choices violate the independence axiom in social settings even though we do not observe this for non-social settings, which might be important in many situations such as voting over redistribution.

(home)

(last updated: 2014)