NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Pareto Inefficiency of Market Economies: Search and Efficiency Wage Models

Bruce Greenwald, Joseph E. Stiglitz

NBER Working Paper No. 2651 (Also Reprint No. r1161)
Issued in July 1988
NBER Program(s):   EFG

This paper shows that market economies with search and in which wages are affected by efficiency wage considerations are not constrained Pareto efficient. Wages are not set at Pareto efficient levels, nor is the level of employment (unemployment) Pareto efficient. We identify the nature of the biases and the welfare improving government interventions.

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Document Object Identifier (DOI): 10.3386/w2651

Published: The American Economic Review, Vol. 78, No. 2, pp. 351-355, (May 1988).

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