We build a general equilibrium model that features uninsurable idiosyncratic shocks, search frictions and an operative labor supply choice along the extensive margin. The model is calibrated to match the average levels of gross flows across the three labor market states: employment,...

This paper argues the Kaldor-Hicks criterion can be a sensible criterion for judging whether to conduct a policy in a dynamic economy if the agents can trade state-contingent securities regarding a future policy change. When the probability of the policy change is very small, ex-ante security...