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.

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 compare three market structures for monetary economies: bargaining (search equilibrium); price taking (competitive equilibrium); and price posting (competitive search equilibrium). We also extend work on the microfoundations of money by allowing a general matching technology and entry. We study how equilibrium and the effects of policy depend on market structure. Under bargaining, trade and entry are both inefficient, and inflation implies first-order welfare losses. Under price taking, the Friedman rule solves the first inefficiency but not the second, and inflation may actually improve welfare. Under posting, the Friedman rule yields the first best, and inflation implies second-order welfare losses.

Many individuals simultaneously have significant credit card debt and money in the bank. The credit card debt puzzle is as follows: given high interest rates on credit cards and low rates on bank accounts, why not pay down debt? While some economists go to elaborate lengths to explain this, we argue it is a special case of the rate of return dominance puzzle from monetary economics. We extend standard monetary theory to incorporate consumer debt, which is interesting in its own right since developing models where money and credit coexist is a long-standing challenge. Our model is quite tractable—for example, it readily yields nice existence and characterization results—and helps put into context recent discussions of consumer debt.

We survey the literature on search-theoretic models of the labor market. We show how this approach addresses many issues, including the following: Why do workers sometimes choose to remain unemployed? What determines the lengths of employment and unemployment spells? How can there simultaneously exist unemployed workers and unfilled vacancies? What determines aggregate unemployment and vacancies? How can homogeneous workers earn different wages? What are the tradeoffs firms face from different wages? How do wages and turnover interact? What determines efficient turnover? We discuss various modeling choices concerning wage determination and the meeting process, including recent models of directed search.

The essential function of money is its role as a medium of exchange. The authors 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. The authors also show that the model can be used to addre ss some substantive issues in monetary economics, including the potenti al welfare-enhancing role of money, the interaction between specializat ion and monetary exchange, and the possibility of equilibria with multip le fiat currencies.

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.

The authors 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. The authors 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.