published in: Journal of Public Economic Theory, 2007, 9 (5), 867-884
This paper revisits the normative properties of search-matching economies when
homogeneous workers have concave utility functions and wages are bargained over. The
optimal allocation of resources is characterized first when information is perfect and second
when search effort is not observable. To decentralize these optima, employees should be
unable to extract a rent when information is perfect. An appropriate positive rent is however
needed in the second case. To implement these optima, non-linear income taxation is a key
complement to unemployment insurance. According to the level of the workers’ bargaining
power, taxation has to be progressive
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