Random of Balanced Matching: an Equilibrium Search Model with Endogenous Capital and Two-Sided Search.

In this paper we extend the equilibrium search models of Burdett and Mortensen (1998), Burdett and Vishwanath (1988) and Mortensen and Vishwanath (1994) to allow for endogenous matching and endogenous capital determination. In our model, in order to attract a positive measure of workers, firms must produce a specific hiring effort which is by itself costly (cost of advertizing posts, training new employees). Workers then draw firms in proportion to their hiring effort. Moreover, as in the model of Acemoglu and Shimer (1997), upon entering the market firms must choose a determined amount of capital which is then fixed for ever and indexes labour productivity. We characterize the euqilibrium and derive expressions for the endogenous equilibrium wage distributions.