A model of search and matching with PES intermediation

The paper is an extension of Morgan (A model of search, coordination and market segmentation. Department of Economics, SUNY-Buffalo Working paper, 1998). It shows that introducing a specialist matching intermediary, a public employment exchange, can improve the efficiency of the market under certain conditions. Coupled with search costs and incentive compatible lumpsum membership fees, agents participate in only one of the disjoint segments generated in such markets. A complete description is provided of the equilibrium matching of agents. In equilibrium, agents separate according to type into different segments viz., an informal economy, an economy operated by the intermediary, and an economy populated by relatively highly skilled agents only. Welfare properties of the equilibrium are provided.