joint with Federico Bonetto

We develop a method to construct Dynamic Nash Equilibria (DNE) in search models as exemplified in Kiyotaki and Wright (1989) when agents play pure strategies.
We apply the method to study the consequences of technological changes on the patterns of consumption, employment, and welfare.
Agents are specialized in consumption and production. Goods can be stored at a cost that depends on the type of good. The effects of a technological shock on an individual profile of trading strategy and on his pattern of production depend on his skills, his preferences, and the storage cost he expects to incur. Depending on the prevailing technology and skill specification there could be a unique dynamic equilibrium or multiple dynamic equilibria.
We illustrate the transition from one steady state to another through a number of numerical experiments. The analysis uncovers the mechanisms that lead to an expansion or contraction of consumption and welfare inequality along the adjustment process.
We find that technological advances are only in specific circumstances welfare improving for all.

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