This is a revised version of a chapter of my Ph.D. dissertation. I would like to thank three anonymous referees for their helpful comments. I would also like to thank Ken Burdett, Steven Davis, Jan Eeckhout, Nicolas Jacquet, Ian King, Shouyong Shi, and Randy Wright for their helpful comments. Thanks also go out to participants at the Search and Matching workshop of the University of Pennsylvania and seminar participants at the National University of Singapore and the Far Eastern Meeting of the Econometric Society 2006. Any and all errors are mine. Please address correspondence to: Serene Tan, Department of Economics, National University of Singapore, AS2/05-26, 1 Arts Link, Singapore 117570. Tel: +65-6516-3964. Fax: +65-6775-2646. E-mail: email@example.com or firstname.lastname@example.org.
DIRECTED SEARCH AND FIRM SIZE*
Article first published online: 22 FEB 2012
© (2012) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
International Economic Review
Volume 53, Issue 1, pages 95–113, February 2012
How to Cite
Tan, S. (2012), DIRECTED SEARCH AND FIRM SIZE. International Economic Review, 53: 95–113. doi: 10.1111/j.1468-2354.2011.00672.x
Manuscript received April 2010; revised October 2010.
- Issue published online: 22 FEB 2012
- Article first published online: 22 FEB 2012
Standard directed search models predict that larger firms pay lower wages than smaller firms, contrary to the data. This article proposes one way to obtain this positive size–wage differential in a directed search setting. I posit that there is an optimal size associated with a firm: A firm suffers a penalty by not operating at its optimal size. I show that if this penalty is sufficiently large the size–wage differential will be obtained. My model also gives a new way to look at the data because it highlights the importance of the distinction between intended and realized firm sizes.