Aico van Vuuren

Labor market search with two sided heterogeneity: hierarchical versus circular models

Abstract Search models with two-sided heterogeneity and hierarchical sorting are difficult to solve analytically. Teulings and Gautier (2004) apply Taylor expansions, which are only valid close to the Walrasian equilibrium. This paper applies a simpler circular model instead of the more realistic hierarchical model. Workers and firms are located on a circle. We derive the unique analytical equilibrium of this model and show that it has the same characteristics as the Taylor expansion of the hierarchical model. This raises hope that the former can be used as a proxy for the latter in more complex settings.

Using Firm Data to Assess the Performance of Equilibrium Search Models of the Labor Market

Equilibrium search models are useful tools for the evaluation of labor market policies. Recently developed equilibrium search models of the labor market are able to fit the wage distribution perfectly with longitudinal labor supply data, by estimating an appropriate distribution of labor productivity across firms. This paper formally compares such structural estimates to their directly observed counterparts in firm data. More generally, we investigate the extent to which these models are able to explain the observed distributions of wages, productivities and firm sizes across firms, as well as the extent to which they are able to explain the observed relationships between these variables across firms. The parameters that capture search frictions are estimated with worker data that are matched to the firm data.

On-the-Job Search and City Structure

We investigate an equilibrium search model in which the search frictions are increasing with the distance to the central business district allowing for on-the-job search and endogenous (monopsony) wage formation and land allocation. We find that there are many different possible outcomes with respect to the location of unemployed workers within a metropolitan area. The city structure of the decentralized market is only efficient when commuting costs of the employed workers are large. Policies reducing the rental costs of unemployed workers for locations close to the central business district can potentially increase welfare.

A Flexible Test for Present Bias and Time Preferences Using Land-Lease Contracts

When agents have present bias, they discount more between now and the next period than between period t (> 1) and t + 1. How fast the future discount rate (evaluated today) decays is an empirical question. We show that the discount function can be non-parametrically identified with contracts that specify payments that take place at various points in time in the future and which are traded and priced in a competitive market. We use a unique land lease-contract data set for Amsterdam, which has the above properties, to test for present bias in a flexible way. We find no evidence for present bias in this market. Even though we allow for a general-hyperbolic specification (which has exponential discounting as a special case), our estimates converge to an exponential discount function with a corresponding discount rate (in our baseline specification) of 8%.

The Effect of Land Lease on House Prices

In Amsterdam, houses located on private land and houses with various land-lease contracts coexist. The city of Amsterdam plans to abandon the present system. This requires an estimate of the market valuation of future land-lease payments on the house price. We investigate the impact on house prices of: (i) the number of years that the land lease has been paid in advance and (ii) the amount that must be paid up front. Houses on privately owned land are on average 10% more expensive. Houses with a land-lease contract that has been paid in advance are 0.41% more expensive for each year that no land lease has to be paid. We find a negative impact of the land-lease rent that needs to be paid on the house price.