Pareto Inefficiency of Market Economies: Search and Efficiency Wage Models

Bruce C. N. Greenwald · Joseph Eugène Stiglitz

146 citations0/0 files storedNational Bureau of Economic Research

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Labor market dynamics and wage inequality Economic Theory and Institutions Economic theories and models

Abstract

This paper shows that market economies with search and in which wages are affected by efficiency wage considerations are not constrained Pareto efficient.Wages are not set at Pareto efficient levels, nor is the level of employment (unemployment) Pareto efficient.We identify the nature of the biases and the welfare improving government interventions.

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References

1986Externalities in Economies with Imperfect Information and Incomplete Markets 1982Property Rights and Efficiency in Mating, Racing, and Related Games

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