Robust Control Analysis of Labor Markets

Diploma Thesis by Marc Vahlert
August 31, 2006

Abstract:

This Diploma Thesis wants to analyze, how search- and job-acceptance behaviour of workers is affected, if they have misspecified believes concerning the model environment. To capture features like knightian uncertainty aversion, and model misspecification I make use of Hansen Sargent robust control techniques and combine them with search theoretic models of the labor market. I introduce two different ways of doing so. I start out with an easy or naive version, where the worker are uncertain concerning the firm or the government behavior, i.e. future wages or government benefits turn sour. I therefore develop techniques, how the wage distribution is skewed by the agent. In the end, I present a search theoretic model with explicit search intensity and finite lived agents, making use of theses skewed wage distributions.