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Counteroffers and Efficiency in Competitive Labor Markets with Asymmetric Information

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This paper considers the effect of offer matching on labor market outcomes when the current employer has better information about his worker's productivity than potential employers. Previous research found that when current employers have better information than potential employers, the later use job assignment to infer an employed worker's qualifications. As a result, assignment of workers to jobs is inefficient. I find that when current employers can match outside offers the equilibrium outcome is efficient despite the asymmetric information. I then analyze the effect of the asymmetric information on investment in human capital made by employers and workers, and find these investment levels to be first best.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2002-E28.

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Handle: RePEc:cmu:gsiawp:-2077361967

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Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/

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Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp

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Cited by:
  1. Arvidsson, Sara, 2011. "Predictors of customer loyalty in automobile insurance - The role of private information in risky driving behavior and claim history," Working papers in Transport Economics 2011:2, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
  2. Kameshwari Shankar & Suman Ghosh, 2005. "Favorable Selection in the Labor Market: A Theory of Worker Mobility in R&D Intensive Industries," Working Papers 05006, Department of Economics, College of Business, Florida Atlantic University.

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