Abstract
Search models with two-sided heterogeneity and hierarchical sorting are difficult to solve analytically. Teulings and Gautier (2004) apply Taylor expansions, which are only valid close to the Walrasian equilibrium. This paper applies a simpler circular model instead of the more realistic hierarchical model. Workers and firms are located on a circle. We derive the unique analytical equilibrium of this model and show that it has the same characteristics as the Taylor expansion of the hierarchical model. This raises hope that the former can be used as a proxy for the latter in more complex settings.
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