Benjamin Villena-Roldán, Stefano Banfi, 17 February 2018

Researchers often pick a random or a directed search model based on convenience and theoretical implications, but distinguishing between the two is important as many labour market regulations may be welfare-improving under random search, but not under directed search. This column uses data from Chile to show that job-seekers respond to information posted by employers, suggesting that policy design should consider the prescriptions of directed search models.  However, the evidence also shows that relevant features of these markets are not well captured by existing models.

Randall Wright, Philipp Kircher, Benoit Julien, Veronica Guerrieri, 07 January 2018

Search models have vastly improved our understanding of important market events that are not explained by classical economic theory, but they tend to treat price formation as an afterthought. This column introduces a survey of the literature on ‘directed search’, which aims to keep the explanatory power of search models but allows for a meaningful role of prices in determining where people search for a trading partner.  

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