A model economy is described that integrates job search and signal extraction analysis. Equilibrium differs from search models without signal extraction in that, even with a fixed real sector, unemployment fluctuates stochastically. It differs from standard signal extraction models because search introduces persistence. In fact, unemployment follows a second-order difference equation with coefficient that are functions of current and lagged values of the stochastic shocks. Thus the model has the potential to mimic actual business cycle data despite the fact that the underlying shocks are independently and identically distributed. Policy implications are discussed.

We develop a model of production and exchange with uncertainty concerning the quality of commodities and study the role of fiat money in ameliorating frictions caused by private information. The model is specified so that, without private information, only high-quality commodities are produced, and there is no welfare gain from using money. With private information, there can be equilibria (and sometimes multiple equilibria) where low-quality commodities are produced, and money can increase welfare. Money works by promoting useful production and exchange. In efficient monetary equilibria, agents adopt strategies that increase the probability of acquiring high-quality output.

The essential function of money is its role as a medium of exchange. We formalize this idea using a search-theoretic equilibrium model of the exchange process that captures the "double coincidence of wants problem" with pure barter. One advantage of the framework described here is that it is very tractable. We also show that the model can be used to address some substantive issues in monetary economics, including the potential welfare-enhancing role of money, the interaction between specialization and monetary exchange, and the possibility of equilibria with multiple fiat currencies.

We document and attempt to explain the observation that automobile insurance premiums vary dramatically across cities. We argue that high premiums can be attributed, at least in part, to large numbers of uninsured motorists in some markets, while uninsured motorists can be attributed to high premiums. We construct a simple noncooperative equilibrium model that can generate inefficient equilibria with uninsured drivers and high, yet actuarially fair, premiums. For certain parameterizations, an efficient full-insurance equilibrium and inefficient high-price equilibria with uninsured drivers exist simultaneously, helping to explain price variability across otherwise similar cities. Policy implications are discussed.

The goal of this paper is to extend existing search-theoretic models of fiat money, which until now have assumed that the price level is exogenous, by explicitly incorporating bilateral bargaining. This allows us to determine the price level endogenously and leads to additional insights concerning the role of money. For example, we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner's problem, although the difference can become small as the discount rate or search friction vanishes. We also find that there exist nonstationary inflationary equilibria.

We analyze two unemployment insurance systems. In one, unemployed workers receive benefits while those on reduced hours do not, as in North America (at least until recently). In the other, short-time compensation is paid to workers on reduced hours, as in Europe. The first system causes inefficient temporary layoffs for some parameters; the latter does not, but implies inefficient hours per worker. Some evidence is presented regarding these effects. Despite policymakers' recent enthusiasm for short-time compensation, the clear implication of this project is that changes should come on the tax, not benefit, side of the system.

We analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo. Nash equilibria in trading strategies are characterized. Certain goods emerge endogenously as media of exchange, or commodity money, depending both on their intrinsic properties and on extrinsic beliefs. There are also equilibria with genuine fiat currency circulating as the general medium of exchange. We find that equilibria are not generally Pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare. Velocity, acceptability, and liquidity are discussed.

Economies are studied where labor contracts, even without changing real allocations, can make equilibria appear different. One basic example is that wage observations generated by long-term employment contracts are biased measures of theoretical market wages. This idea is analyzed in a dynamic, stochastic, economic model, including both overlapping generations of finite-lived workers and infinite-horizon employers, so that the implications for business cycle, life cycle, and cross-sectional phenomena can be explicitly addressed. Understanding contracts in this way potentially allows us to reconcile several ostensibly anomalous aspects of the data with equilibrium theory.

I analyze job search models with random layoffs in which employment opportunities are characterized by a wage and some measure of risk. Intuition suggests that a worker ought to demand a higher wage if he is to accept a job with a higher layoff rate; but this is not true in several models analyzed in the literature. I demonstrate here that assumptions about what happens immediately after a layoff and after a quit are critical in determining the relation between reservation wages and risk. Making these assumptions explicit clarifies the reasons why different models imply quite different predictions.

We extend the concept of competitive search equilibrium to environments with private information, and in particular adverse selection.Principals (e.g.employers or agents who want to buy assets) post contracts, which we model as revelation mechanisms.Agents (e.g.workers, or asset holders) have private information about the potential gains from trade.Agents observe the posted contracts and decide where to apply, trading off the contracts' terms of trade against the probability of matching, which depends in general on the principals' capacity constraints and market search frictions.We characterize equilibrium as the solution to a constrained optimization problem, and prove that principals offer separating contracts to attract different types of agents.We then present a series of applications, including models of signaling, insurance, and lemons.These illustrate the usefulness and generality of the approach, and serve to contrast our findings with standard results in both the contract and search literatures.