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Efficient Cheap Talk in Directed Search: On the Non-essentiality of Commitment in Market Games

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  • Kim, Kyungmin
  • Kircher, Philipp

Abstract

Directed search models are market games in which each firm announces a wage commitment to attract a worker. Miscoordination among workers generates search frictions, yet in equilibrium more productive firms post more attractive wage commitments to fill their vacancies faster, which yields constrained efficient outcomes. We show that commitment is not essential: Exactly the same efficient allocation can be sustained when announcements are pure cheap talk followed by a suitable subsequent wage-formation stage. The insights from existing commitment models extend unchanged to such a cheap-talk environment, even when workers differ in outside opportunities or observable common productivity.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8759.

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Date of creation: Jan 2012
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Handle: RePEc:cpr:ceprdp:8759

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Keywords: cheap talk; commitment; competitive search; directed search;

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Cited by:
  1. Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2013. "Competing with Asking Prices," Working Papers tecipa-471, University of Toronto, Department of Economics.

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