For 10 points, name this framework often used to model the effect of frictions on the labor market by assuming costs for workers looking for jobs.
This approach was used by Albrecht and Axell to develop a model that assumes two types of sellers with different reservation prices. First-generation models in this approach suffered from the Rothschild Paradox that homogenous goods cannot be sold at different prices under equilibrium conditions. A major model used in this approach was devised to challenge Lucas' neutrality of money model, and exhibits several Pareto-ranked equilibria for output based on the "optimism" or "pessimism" of agents in the steady-state. Daron Acemoglu and Robert Shimer used this approach to prove that social insurance policies that reduce risk aversion can increase output. A major model used in this approach, which imagines an island where producers climb coconut trees they cannot consume before trading, won the 2010 Nobel Prize for Mortensen, Pissarides, and Diamond. For 10 points, name this framework often used to model the effect of frictions on the labor market by assuming costs for workers looking for jobs.
This approach was used by Albrecht and Axell to develop a model that assumes two types of sellers with different reservation prices.
search and matching theory