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Information Overload in Monopsony Markets

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  • Stefano Ficco

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    (Faculty of Economics, Erasmus Universiteit Rotterdam)

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    Abstract

    I consider a situation in which heterogenous senders (applicants) compete in order to be selected by one receiver (employer). Productivity is private information to the senders, and the receiver processes imperfect signals (applications) to screen among applicants. The information-processing technology is imperfect: the accuracy of each signal in predicting the unknown productivity decreases with the total number of signals processed. I show that, for a sufficiently large market, information overload occurs as there exist equilibria in which too many people apply and the receiver neglects some applications. For any information-processing technology level, information overload equilibria emerge when the cost of sending applications is low relatively to the existing technology level. The magnitude of information overload is bounded and it is larger if the receiver cannot neglect applications. As a result, an overloaded market in which the receiver has to process all applications is less efficient than an overloaded market where neglecting excessive information is an option.

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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-082/1.

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    Date of creation: 16 Jul 2004
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    Handle: RePEc:dgr:uvatin:20040082

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    Web page: http://www.tinbergen.nl

    Related research

    Keywords: Imperfect information-processing technology; quality and quantity of information; information overload;

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    References

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    1. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
    2. Barton L. Lipman, 1995. "Information Processing and Bounded Rationality: A Survey," Canadian Journal of Economics, Canadian Economics Association, vol. 28(1), pages 42-67, February.
    3. Andrew Weiss, 1995. "Human Capital vs. Signalling Explanations of Wages," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 133-154, Fall.
    4. Stefano Ficco & Vladimir A. Karamychev, 2004. "Information Overload in Multi-Stage Selection Procedures," Tinbergen Institute Discussion Papers 04-077/1, Tinbergen Institute.
    5. William M. Boal & Michael R. Ransom, 1997. "Monopsony in the Labor Market," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 86-112, March.
    6. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
    7. Noldecke,Georg & van Damme,Eric, 1988. "Signalling in a dynamic labor market," Discussion Paper Serie A 148, University of Bonn, Germany.
    8. Giuseppe Moscarini & Lones Smith, 2002. "The Law of Large Demand for Information," Econometrica, Econometric Society, vol. 70(6), pages 2351-2366, November.
    9. Giuseppe Moscarini & Lones Smith, 2001. "The Optimal Level of Experimentation," Econometrica, Econometric Society, vol. 69(6), pages 1629-1644, November.
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    Cited by:
    1. Stefano Ficco & Vladimir A. Karamychev, 2004. "Information Overload in Multi-Stage Selection Procedures," Tinbergen Institute Discussion Papers 04-077/1, Tinbergen Institute.
    2. Rob van der Noll, 2006. "Competition for a Prize," Tinbergen Institute Discussion Papers 06-013/1, Tinbergen Institute.
    3. Rob van der Noll, 2006. "Competition for a Prize," Tinbergen Institute Discussion Papers 06-013/1, Tinbergen Institute.

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