In wage bargaining theory, in the context of matching theory, firms and workers can negotiate a Nash equilibrium by maximizing a function of firms' and workers' surplus - with the purpose of allowing voluntary unemployment?. Let's say we have an objective function $N_t$ and we're trying to maximize it with respect to wage rate and hours worked. Why do we insert the steady-state values of the surpluses in $N_t$?

Any help would be appreciated.

  • $\begingroup$ Can you provide the specific setup of the search model you have in mind? $\endgroup$
    – Herr K.
    Nov 22 '17 at 2:36

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