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Competitive Pressure and Lying in Search Markets

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Author Info
Matthew Baker () (Hunter College)
Ingmar Nyman () (Hunter College)

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Abstract

We study a labor market in which principals and agents must search for a trading partner, and agents have private information about the value of a match. We show that competitive pressure can induce agents to lie and overstate the value of the match. This leads to insufficient frictional unemployment and search, and lower average utility. The resulting social loss increases with the accuracy of the private information and the ease with which matches are created, and decreases with the time-value of money. An unemployment subsidy can eliminate the inefficiency. Changing how the surplus is split between principal and agent, by contrast, has no effect on the agents’ incentive to lie.

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Publisher Info
Paper provided by Hunter College: Department of Economics in its series Hunter College Department of Economics Working Papers with number 426.

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Date of creation: 2009
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Handle: RePEc:htr:hcecon:426

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Related research
Keywords: Search; Private Information; Competition;

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search

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References listed on IDEAS
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  1. Adam Brandenburger & Ben Polak, 1996. "When Managers Cover Their Posteriors: Making the Decisions the Market Wants to See," RAND Journal of Economics, The RAND Corporation, vol. 27(3), pages 523-541, Autumn. [Downloadable!] (restricted)
  2. Matthew Gentzkow & Jesse M. Shapiro, 2006. "Media Bias and Reputation," Journal of Political Economy, University of Chicago Press, vol. 114(2), pages 280-316, April. [Downloadable!] (restricted)
    Other versions:
  3. Inderst, Roman, 2001. "Screening in a Matching Market," Review of Economic Studies, Blackwell Publishing, vol. 68(4), pages 849-68, October.
  4. repec:bep:macfro:v:1:y:2004:i:1:p:1102-1102 is not listed on IDEAS
  5. Jason G. Cummins & Ingmar Nyman, 2005. "The Dark Side of Competitive Pressure," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 361-397, Summer.
    Other versions:
  6. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  7. Inderst, Roman, 2005. "Matching markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 121(2), pages 145-166, April. [Downloadable!] (restricted)
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