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Simultaneous Search and Network Efficiency

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  • Pieter A. Gautier

    (VU University Amsterdam, CEPR, IZA)

  • Christian L. Holzner

    (University of Munich, Ifo Institute for Economic Research, CESifo)

Abstract

When workers send applications to vacancies they create a network. Frictionsarise because workers typically do not know where other workers apply to and firmsdo not know which candidates other firms consider. The first coordination frictionaffects network formation, while the second coordination friction affects networkclearing. We show that those frictions and the wage mechanism are in general notindependent. The wage mechanism determines both the distribution of networksthat can arise and the number of matches on a given network. Equilibria that exhibitwage dispersion are inefficient in terms of network formation. Under complete recall(firms can go back and forth between all their candidates) only wage mechanismsthat allow for ex post Bertrand competition generate the maximum matching on arealized network.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-092/3.

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Date of creation: 12 Jul 2011
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Handle: RePEc:dgr:uvatin:20110092

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Keywords: Efficiency; network clearing; random bipartite network formation; simultaneous;

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Cited by:
  1. Cheremukhin, Anton A. & Tutino, Antonella & Restrepo-Echavarria, Paulina, 2014. "A theory of targeted search," Working Papers 1402, Federal Reserve Bank of Dallas.

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