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The Strathprints institutional repository is a digital archive of University of Strathclyde research outputs.

Strathprints serves world leading Open Access research by the University of Strathclyde, including research by the Strathclyde Institute of Pharmacy and Biomedical Sciences (SIPBS), where research centres such as the Industrial Biotechnology Innovation Centre (IBioIC), the Cancer Research UK Formulation Unit, SeaBioTech and the Centre for Biophotonics are based.

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Testing for optimality in job search models

Koop, G.M. and Poirier, D. (2002) Testing for optimality in job search models. Econometrics Journal, 4 (2). pp. 257-272. ISSN 1368-4221

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Abstract

Models of search in labor markets are potentially of great use for policy analysis since their parameters are structural. However, a common feature of these models is that an assumption of optimal behavior on the part of agents is necessary to achieve identification. From a classical econometric perspective, this means the assumption of optimality is untestable and, if optimality is not imposed, it is impossible to learn about the unidentified parameters. This paper argues that Bayesian methods can overcome both of these problems. In particular, we discuss testing optimality in stationary job search models with reservation wages. Learning about economically meaningful quantities such as the discount rate and risk aversion, not identified by the data alone, is considered.