The Mortensen rule and efficient coordination unemployment

We apply the efficiency axioms of Mortensen (1982) to a set of matching games involving coordination frictions between buyers. These games include markets with .finite numbers of buyers and sellers and markets with infinite numbers of heterogenous buyers and homogenous sellers. We show that the Mortensen rule, but not the Hosios rule, gives constrained efficient allocations. We also show that the Mortensen rule is implemented by a simple auction.UnpublishedAcemoglu, D., (2001) “Good Jobs versus Bad Jobs”, Journal of Labor Economics, 19, 1-22. Burdett, K. S. Shi and R. Wright, (2001) “Pricing and Matching with Frictions”, Journal of Political Economy, 109, 1060-85. Groes, E. and T. Tranæs (1999) On the Efficiency of Decentralized Exchange with Resale Possibilities," International Economic Review 40, 423-438. Hosios, A. (1990) “On the Efficiency of Matching and Related Models of Search and Unemployment”, Review of Economic Studies, 57, 279-298. Julien, B., J. Kennes and I. King (2000) “Bidding for Labor”, Review of Economic Dynamics, 3, 619-649. Julien, B., J. Kennes and I. King (2006) .Residual Wage Disparity and Coordination Unemployment.International Economic Review, in press. Kultti, K (1999) “Equivalence of Auctions and Posted Prices”, Games and Economic Behavior, 27, 106-13. Ljungqvist, L., and T. Sargent (2004) Recursive Macroeconomic Theory, 2nd edition, MIT Press. Moen E. (1997) “Competitive Search Equilibrium”, Journal of Political Economy, 105, 385-411. Moen E. (1999) “Education, Ranking, and Competition for Jobs” Journal of Labor Economics, 17, 694-723. Mortensen D. (1982) “Efficiency of Mating, Racing and Related Games., American Economic Review”, 72, 968-979. Nash, J. F. (1953) “Two-Person Cooperative Games”, Econometrica 21, 128-140. Shimer, R. (1999) “Job Auctions”, mimeo, Princeton University Shimer, R. (2005) “The Assignment of Jobs in an Economy with Coordination Frictions”, Journal of Political Economy, in press