Efficiency in a search and matching model with training costs

This paper studies the efficiency of the search and matching model with training costs. I incorporate productivity enhancing firm-specific skill training into the search and matching model of Pissarides (2000). I demonstrate that while the decentralized economy can be efficient if training costs are not sunk at the time of wage determination, the decentralized economy is not efficient due to a hold-up problem if training costs are sunk.

Research highlights► Develop a search and matching model with firm-sponsored specific training. ► Study the efficiency of the matching model with training costs. ► The model introduces a parameter capturing the degree of contractual incompleteness.