Working Papers

PHILIPP KIRCHER

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Publications Short Description

Strategic Firms and Endogenous Consumer Emulation

with Andrew Postlewaite,

Quarterly Journal of Economics, 2008, Vol. 123(2), pp. 621-661.

Better informed consumers may be treated preferentially by firms since their consumption serves as a quality signal for other customers. For normal goods this results in wealthier individuals being treated. We investigate this phenomenon in an equilibrium model of social learning with heterogeneous consumers and firms that act strategically. (Tech Appendix)

A Model of Money with Multilateral Matching

with Manolis Galenianos,

Journal of Monetary Economics, 2008, Vol. 55, pp. 1054-1066.

We introduce sales mechanisms that reveal private information into a monetary economy, derive the distributions of money holdings and prices and show that inflation leads to scarcity from which the poor suffer most. Therefore, inflation acts as a regressive tax.

Directed Search with Multiple Job Applications with Manolis Galenianos,

Journal of Economic Theory, 2009, 114(2), pp. 445-471.

We derive the theoretical properties of an equilibrium search model in which firms strategically set wages to attract workers and workers apply to multiple firms to secure employment.

Efficiency of Simultaneous Search Journal of Political Economy, 2009, Vol. 117(5), pp. 861- 913.

Simultaneous search by workers in a frictional labor market converges to the efficient Walrasian outcome when workers search costs are small. It remains constrained efficient even if costs are not small since firms strategically set wages to attract workers and can communicate with all their applicants. Despite homogeneity, wage dispersion is essential.

Sorting vs Screening – Search Frictions and Competing Mechanisms with Jan Eeckhout, Journal of Economic Theory, 2010, Vol. 145, 1354-1385.

In a market where sellers compete by posting trading mechanisms, we allow for a general search technology and show that its features crucially affect the equilibrium mechanism. Price posting prevails when meetings are rival, i.e., when a meeting by one buyer reduces another buyer's meeting probability. Under price posting buyers reveal their type by sorting ex ante. Only if the meeting technology is sufficiently non-rival, price posting is not an equilibrium. Multiple types then visit the same sellers who screen ex post through auctions.

Sorting and Decentralized Price Competition with Jan Eeckhout, Econometrica, 2010, Vol. 78(2), 539–574.

We analyze the impact of search frictions in the standard competitive assignment problem of Becker’s (1973). Assortative matching depends on a simple trade-off between the supermodularity of the match-value and the elasticity of the search technology. For a large class of matching frictions the relevant condition is root-supermodularity. (older WP version)

Market Power and Efficiency in a Search Model with Manolis Galenianos and Gabor Virag, International Economic Review, forthcoming.

In a frictional labor market where a finite number of firms strategically set wages to compete for workers, minimum wages improve employment but reduce output and efficiency, while moderate unemployment benefits have the reverse effect. (Technical Appendix)

On the Game-theoretic Foundations of Competitive Search Equilibrium

with Manolis Galenianos, International Economic Review, forthcoming

In large class of directed search games where a finite number of firms strategically competes to attract workers, we prove that a pure strategy Nash equilibrium exists. We provide novel characterization and uniqueness results, and show that the limit outcome as market size grows indeed micro-founds the standard specification for large directed search economies.

Identifying Sorting – In Theory

with Jan Eeckhout, Review of Economic Studies, forthcoming

In a simple search model, we show that wage data alone does not allow for identification of positive or negative assortative matching. Nevertheless, the strength of sorting can be identified, even though not via correlation of fixed effects. Since the strength of sorting fully determines the output loss from mismatch, it seems a fruitful direction for further research.

Working Papers Short Description

Fairness: A Critique to the Utilitarian Approach Dec 2009, with Sandra Ludwig and Alvaro Sandroni

Standard utilitarian choice theories assume that a lottery is never preferred over getting

the most preferred underlying outcome with certainty. We challenge this notion assumption for social situations. Individuals are presented with three options: to get more money; to get less money and some other good; to flip a coin between these two alternatives. When the good is a standard consumption good (coffee mug), randomization is indeed negligible. When it is a social good that yields payoffs to others, nearly a third of our subjects randomize.

Work in Progress Short Description

An Equilibrium Model of the African HIV/AIDS Epidemic Dec 2009

with Jeremy Greenwood and Michele Tertilt

An equilibrium search model of the Malawian HIV/AIDS epidemic is presented. Individuals engage in different types of sexual activity, which vary in their riskiness. When choosing a sexual activity, such as short-term sex without a condom, a person rationally considers its risk. A simulated version of the model is parameterized to match some salient facts about the Malawian epidemic. Some topical policies (e.g., male circumcision, treatment of other STDs, and promoting marriage) are studied and found to have potential to backfire: Moderate interventions increase the prevalence of HIV/AIDS for reasonable parameters, due to shifts in human behavior and equilibrium effects.