This paper examines equilibrium in a market with free entry where consumers search and firms set prices on individual units of the commodity. The prices attached to newly produced goods are continuously adjusted. Prices attached to previously produced goods can only be changed at a cost. Thus inflation reduces the real price of goods in inventory awaiting sale. The presence of previously priced goods lowers the reservation price of customers. Thus, inflation cuts into the market power created by the need to search for the good. Consumer welfare is inverse u-shaped in inflation with a strictly positive optimal inflation rate.

Using a simple search technology and the Nash bargaining solution, the paper derives the steady state equilibrium negotiated wage as a function of the equilibrium unemployment and vacancy rates. For this wage, the lifetime expected present discounted value of earnings of a new worker is compared with the social marginal product of a new worker. These are not generally equal implying inefficient incentives for labour mobility.

Journal Article Technical Change and the Measurement of Capital and Output Get access Peter A. Diamond Peter A. Diamond University of California, Berkeley, California Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 32, Issue 4, October 1965, Pages 289–298, https://doi.org/10.2307/2295836 Published: 01 October 1965

Journal Article Disembodied Technical Change in a Two-Sector Model Get access Peter A. Diamond Peter A. Diamond University of California, Berkeley Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 32, Issue 2, April 1965, Pages 161–168, https://doi.org/10.2307/2296060 Published: 01 April 1965

Using the Mirrlees optimal income tax model with quasi-linear preferences, the paper examines conditions for marginal tax rates to be rising at high income levels and declining in an interval containing the modal skill. It examines conditions for the marginal tax rate to be higher at a low skill level than at the high skill level with the same density--an argument only holding for skill levels above a cutoff where resources of a worker are marginally of the same value as resources of the government. Data on earnings rates are presented.

Equilibrium is analyzed for a simple barter model with identical risk-neutral agents where trade is coordinated by a stochastic matching process. It is shown that there are multiple steady-state rational expectations equilibria, with all non-corner solution equilibria inefficient. This implies that an economy with this type of trade friction does not have a unique natural rate of unemployment.