The risk-neutral non-additive probability with market frictions

Non-additive probability

Disinflation with labor market frictions

This paper studies disinflationary shocks in a non-linear New Keynesian model with search and matching frictions and moral hazard in the labor markets. Our focus is on understanding the wage formation process as well as welfare costs of disinflations in the presence of such labor market frictions. The presence of imperfect information in labor markets imposes a lower bound on worker surplus tha...

Market Frictions, Technology Adoption

This paper develops an endogenous growth model with labor market matching and technology adoption. While labor market search and entry frictions lengthen technology diffusion, exogenous technology arrival may creatively destruct jobs in the short run. Such interrelationships give rise to multiple equilibria (global and local indeterminacy) under which a small autonomous technological improvemen...

Contractual distortions in a market with frictions

This paper analyses contract design in a decentralized market environment with frictions. While principals (e.g., firms) have all contractual power, their market power is constrained as agents (e.g., workers) can choose to wait and search for better offers. We find that results depend crucially on how market frictions affect agents’ utilities. With type-independent costs of search and waiting, ...

Market-making with Search and Information Frictions∗

We develop a dynamic model of trading through market-makers that incorporates two canonical sources of illiquidity: trading (or search) frictions and asymmetric information. We show that conventional predictions, derived from models that study either of these frictions in isolation, do not necessarily hold when both frictions are present. These results have important implications for technologi...