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Social networks and unraveling in labor markets

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  • Fainmesser, Itay P.

Abstract

This paper studies the phenomenon of early hiring in entry-level labor markets affected by social networks. We offer a model in which information is revealed over time. At first, workers have noisy information about their own ability. The early information is ‘soft’ and non-verifiable, and workers can convey the information credibly only to firms that are connected to them. Later on, ‘hard’ accurate verifiable information becomes available. We characterize the effects of changes to the network structure on the unraveling of the market towards early hiring. Moreover, we show that an efficient design of the matching procedure can prevent unraveling.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 1 ()
Pages: 64-103

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:1:p:64-103

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Web page: http://www.elsevier.com/locate/inca/622869

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Keywords: Networks; Unraveling; Entry-level labor markets; Early hiring;

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References

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  1. Guillaume Frechette & Alvin E. Roth & M. Utku Ünver, 2004. "Unraveling Yields Inefficient Matchings: Evidence from Post- Season College Football Bowls," Microeconomics 0404001, EconWPA, revised 24 Sep 2004.
  2. Karlan, Dean & Mobius, Markus & Rosenblat, Tanya & Szeidl, Adam, 2009. "Trust and Social Collateral," Staff General Research Papers 13026, Iowa State University, Department of Economics.
  3. Alvin E. Roth, 2009. "What Have We Learned from Market Design?," Innovation Policy and the Economy, University of Chicago Press, vol. 9(1), pages 79 - 112.
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  6. Muriel Niederle & Alvin E. Roth, 2009. "Market Culture: How Rules Governing Exploding Offers Affect Market Performance," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 199-219, August.
  7. Hanna W. Halaburda, 2008. "Unravelling in Two-Sided Matching Markets and Similarity of Preferences," Harvard Business School Working Papers 09-068, Harvard Business School.
  8. Muriel Niederle, 2006. "Competitive Wages in a Match with Ordered Contracts," NBER Working Papers 12334, National Bureau of Economic Research, Inc.
  9. Matthew O. Jackson & Brian W. Rogers, 2007. "Meeting Strangers and Friends of Friends: How Random Are Social Networks?," American Economic Review, American Economic Association, vol. 97(3), pages 890-915, June.
  10. Roth, Alvin E. & Sotomayor, Marilda, 1992. "Two-sided matching," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 16, pages 485-541 Elsevier.
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  29. Muriel Niederle & Alvin E Roth, 2003. "Unraveling Reduces Mobility in a Labor Market: Gastroenterology with and without a Centralized Match," Levine's Working Paper Archive 506439000000000428, David K. Levine.
  30. Li, Hao & Rosen, Sherwin, 1998. "Unraveling in Matching Markets," American Economic Review, American Economic Association, vol. 88(3), pages 371-87, June.
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  32. Itay P. Fainmesser, 2012. "Community Structure and Market Outcomes: A Repeated Games-in-Networks Approach," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 32-69, February.
  33. John H. Kagel & Alvin E. Roth, 2000. "The Dynamics Of Reorganization In Matching Markets: A Laboratory Experiment Motivated By A Natural Experiment," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 201-235, February.
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Cited by:
  1. Muriel Niederle & Alvin E. Roth & M. Utku Ünver, 2008. "Unraveling Results from Comparable Demand and Supply: An Experimental Investigation," Boston College Working Papers in Economics 718, Boston College Department of Economics.
  2. Alvin E. Roth, 2010. "Marketplace Institutions Related to the Timing of Transactions," NBER Working Papers 16556, National Bureau of Economic Research, Inc.
  3. Itay P. Fainmesser & David A. Goldberg, 2011. "Bilateral and Community Enforcement in a Networked Market with Simple Strategies," Working Papers 2011-2, Brown University, Department of Economics.
  4. Itay P. Fainmesser, 2012. "Community Structure and Market Outcomes: A Repeated Games-in-Networks Approach," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 32-69, February.

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