In this note, building on Giammarioli (2003), I show that, within the textbook matching model augmented with externalities, indeterminacy of the equilibrium paths requires increasing returns at the aggregate level with respect to vacancies and social elasticity of the matching function with respect to unemployment lower than its private counterpart. The result for the unemployment elasticity is at odds with the requirements for indeterminacy that hold in the standard model of optimal growth with productivity externalities (cf. Benhabib and Farmer, 1994; Guerrazzi, 2012).
Increasing Returns in Matching and Labour Market Dynamics: Comments on Indeterminacy and Search Theory
GUERRAZZI, MARCO
2016-01-01
Abstract
In this note, building on Giammarioli (2003), I show that, within the textbook matching model augmented with externalities, indeterminacy of the equilibrium paths requires increasing returns at the aggregate level with respect to vacancies and social elasticity of the matching function with respect to unemployment lower than its private counterpart. The result for the unemployment elasticity is at odds with the requirements for indeterminacy that hold in the standard model of optimal growth with productivity externalities (cf. Benhabib and Farmer, 1994; Guerrazzi, 2012).
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