Bayesian inference in models based on equilibrium search theory

In this paper we begin by developing practical Bayesian methods for inference in a standard equilibrium search model. We then consider two models which are more flexible, but centered over the equilibrium search model using Bayesian priors. Such priors can be used to control the degree of confidence the researcher has in the assumption of optimal individual or firm behaviour. Subsequently, we extend the model to allow for non-linearity in production and unobserved heterogeneity. The former extension is of interest since a closed form expression for the wage distribution does not exist and, hence, empirical work involving this potentially important extension has not been done. However, we show how Bayesian simulation methods can be used for empirical analysis. The paper concludes with an empirical exercise involving the school-to-work transitions of Canadian and US school leavers.