E¢ ciency of Competitive Search under Asymmetric Information

In this paper, I study the e¢ ciency properties of competitive search equilibria in economies with informational asymmetries. Employers and workers are both risk-neutral and ex-ante homogeneous. I characterize an equilibrium where employers post contracts and workers direct their search towards them. When a match is formed, the disutility of labor is drawn randomly and observed privately by the worker. An employment contract is an incentive-compatible mechanism that satis…es a participation constraint on the worker’s side. I …rst show that in a static setting the competitive search equilibrium is constrained e¢ cient, that is, it cannot be Pareto improved by a Social Planner subject to the same informational and participation constraints faced by the decentralized economy. I then show that in a dynamic setting, on the

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