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Directed Search with Endogenous Search Effort.

Directed Search with Endogenous Search Effort.

Figure 6: Wage

Figure 6: Wage distribution. This distribution describes how production is shared between …rms and agents in each match. Agents wage is extracted from that distribution. Both wage and return are then a question of e¤ort and luck. E¤ort is related to the number of applications made, that induces the shape of the distribution, and luck to the particular realization of the highest o¤er. A wage under(above) the expected value, can be understood as bad(good) luck. In this example the expected o¤er is 0:264. 3 Externality arising from agents miscoordination The choice of the number of applications by the agents generates an externality. They take as …xed the behavior of the other agents when they choose S. If agents were allowed to coordinate in the number of applications they would solve: Max S Q (Q w)(1 Z O(S;)) S 1 w W r(W )dW Sc, (22) where B(W ) and the upper bound are now functions of S instead of S. That expression can be written as: 15

Max 1 (1 O(S; )) S SO(S; )(1 O(S; )) S 1 Q (23) S +SO(S; )(1 O(S; )) S 1 w Sc. This expression is easy to read. Agents maximize the probability of receiving at least two o¤ers times total production, plus the probability of having exactly one o¤er times the reservation wage, minus the cost of making applications. This is close to the result in AGV, where they assume Bertrand competition among …rms. Agents obtain the full value if they have at least two o¤ers and the reservation wage if they receive just one o¤er. The …rst-order condition states that: (a) S 1 (a) ln(a) @O(S;) Q (1 a) 1 + S @O(S;) @S @S 1 ln a (Q w) = c, (24) 1 a where a = 1 O(S; ). The optimal number of coordinated applications, as a function of and for the same parameter values than above, is: Figure 7: Optimal number of applications if agents can coordinate. 16

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