Increasing international competition and changes in the regulatory framework driven by the Basel Committee on Banking Supervision (Basel II) called forth incentives for banks to improve their credit rating systems. In a competitive framework a poor statistical power of a bank's internal rating system will deteriorate the economic performance due to adverse selection, i. e. customers with a better credit quality than assessed by the bank will potentially walk away and leave the bank with a portfolio of customers with a credit quality lower than estimated. Obviously, improving the statistical power of a rating system will have a positive impact on economic performance.
Labor is one of the most heterogeneous products traded in a modern economy. The competitive market for a commodity, where all units are interchangeable and all trade for the same price, could hardly be a worse description of the labor market. No Walrasian auctioneer determines the wage. We study survey evidence on the ways that an employer and a worker determine the wage at the outset of their relationship. Our findings support the predictions of theories of wage determination about the relationship among the level and dispersion of wages, on the one hand, and the incidence of bargaining, on the other hand.
The extensive literature on this topic considers two main cases. The first is wage posting. Here an employer defines a job in terms of duties and qualifications, and commits to a wage. If a candidate is found qualified and interested, the employer offers the wage on a take-it-or-leave-it basis. The second is bargaining. The employer makes an initial offer, but the candidate can make a counteroffer for a higher wage, if so inclined. A key difference between the two modes is the employer’s commitment not to entertain a counteroffer. To the employer, the advantage of posted wages is that the employer may appropriate a large fraction of the surplus of a match. The disadvantage is that a posted wage precludes a match with a candidate whose reservation wage is higher than the posted wage but whose productivity is even higher. Bargaining with this worker would have gained some of the surplus. Bargaining is in the interest of the employer if qualified workers have heterogeneous skill levels.
Money is the medium used to transfer resources on the spot, while liquidity refers to the availability of a medium to transfer resources over time. The monetary search literature initiated by Kiyotaki and Wright (1989) has been successful in providing a solid micro foundation based on trade frictions for the emergence of money as a medium of exchange. On the other hand, a recent growing literature emphasizes the importance of financial frictions and liquidity constraints for the emergence of a medium to transfer resources over time. In particular, Kiyotaki and Moore (2001b) study the effect of limited supply of liquid assets on investment. Although, intuitively, money and liquidity would seem to be linked, these two approaches take them as separate issues.
