TY - JOUR
T1 - Search and Knightian uncertainty
AU - Nishimura, Kiyohiko G.
AU - Ozaki, Hiroyuki
N1 - Funding Information:
We are grateful to the associate editor and an anonymous referee. In particular, the referee’s numerous comments and suggestions greatly improved both the contents and the exposition of the paper. We are also grateful to Makoto Saito, Takashi Kamihigashi, audiences at University of Western Ontario, SUNY-Buffalo, Washington University, University of Tokyo and Kobe University for their helpful comments. The first author’s work is partially supported by a grant to the Project of Information Technology and the Market Economy, from the Japan Society for Promotion of Sciences.
Copyright:
Copyright 2004 Elsevier B.V., All rights reserved.
PY - 2004/12
Y1 - 2004/12
N2 - Suppose that "uncertainty" about labor market conditions has increased. Does this change induce an unemployed worker to search longer, or shorter? This paper shows that the answer is drastically different depending on whether an increase in "uncertainty" is an increase in risk or that in true uncertainty in the sense of Frank Knight. We show in a general framework that, while an increase in risk (the mean-preserving spread of the wage distribution that the worker thinks she faces) increases the reservation wage, an increase in Knightian uncertainty (a decrease in her confidence about the wage distribution) reduces it.
AB - Suppose that "uncertainty" about labor market conditions has increased. Does this change induce an unemployed worker to search longer, or shorter? This paper shows that the answer is drastically different depending on whether an increase in "uncertainty" is an increase in risk or that in true uncertainty in the sense of Frank Knight. We show in a general framework that, while an increase in risk (the mean-preserving spread of the wage distribution that the worker thinks she faces) increases the reservation wage, an increase in Knightian uncertainty (a decrease in her confidence about the wage distribution) reduces it.
KW - Knightian uncertainty
KW - Reservation wage
KW - Risk
KW - Search
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U2 - 10.1016/j.jet.2003.04.001
DO - 10.1016/j.jet.2003.04.001
M3 - Article
AN - SCOPUS:10144255105
SN - 0022-0531
VL - 119
SP - 299
EP - 333
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 2
ER -