1 Search , Applications and Vacancies

Over the last few years the efficiency of search equilibria has been examined by a number of authors. In a series of papers, Diamond (1981; 1982a; 1982b; 1984) has studied this issue in depth. Diamond (1981) shows that in a market with a distribution of match specific mobility costs, an unemployment insurance programme can improve the ex ante welfare of all workers by inducing each of them to forego opportunities with high mobility costs. Diamond (1982b) shows that in a market with no competition among agents, there are multiple equilibria, all of which are Pareto inefficient. The inefficiency occurs because no agent internalizes the value of his increased search activity to other searchers. Diamond and Maskin (1979; 1981), and Mortensen (1981; 1982a; 1982b) show in matching models that the characteristics of the inefficiencies in equilibrium depend upon the search technology. With the exception of Mortensen (1981), (1982a) none of these models allows for contemporaneous competition among searchers. Wilde (1977) has developed a model where the equilibrium price distribution is determined by the level of search intensity of consumers. When each consumer increases his intensity, all sellers lower their prices. This implies that the equilibrium search intensity is Pareto inefficient if only the welfare of consumers is considered; each consumer's welfare would increase if all consumers searched a little harder. Wilde's results depend crucially upon a lack of competition among consumers for the goods being sold. Most labour markets are characterized by some degree of competition for a small number of job openings. This is especially true when the unemployment rate is high or there is a particularly attractive job opening. Firms may limit the number of job openings because of diminishing returns to scale in production and lags in the hiring process. If the number of job openings is small relative to the number of workers searching for those openings, then the competition among