Abstract
This paper presents a two-sector model of search-generated unemployment with the public sector. When the goal equilibrium of the production sector that makes two goods and the goal equilibrium of the government sector are inconsistent, the economy specializes in production. Matching technologies and the surplus-sharing rule jointly determine whether the inconsistency arises. The paper also suggests a way that the Clarke tax will make a matching function endogenous.
JEL classification : F10, H40
