Search,Concave Production,and Optimal Firm Size |
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| Institution: | 1. Department of Geology, Payame Noor University (PNU), PO Box 19395-3697, Tehran, Iran;2. Dipartimento di Scienze della Terra “A. Desio”, Università degli Studi di Milano, Via Botticelli 23, Milano 20133, Italy;3. Division of Geological and Planetary Sciences, California Institute of Technology, Pasadena, CA 91125, USA;1. School of Economics, Fudan University, China;2. School of Economics, Shanghai University of Finance and Economics, China;1. Federal Reserve Board, USA;2. University of North Carolina, Chapel Hill, USA |
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| Abstract: | This paper demonstrates that in a free entry search and bargaining economy with concave production firms over-employ. Bargaining allows the worker's wage to depend upon marginal productivity. As such, with strictly concave production, the wage declines as firms employ more labor. Firms react to this declining wage function by choosing an inefficiently large number of workers. However, in equilibrium, fewer firms are likely to enter causing aggregate employment and vacancies to fall.Journal of Economic LiteratureClassification Numbers: J30, J41, J50. |
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