Competitive Pressure and Lying in Search Markets
AbstractWe 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Hunter College Department of Economics in its series Economics Working Paper Archive at Hunter College with number 426.
Date of creation: 2009
Date of revision:
Search; Private Information; Competition;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-26 (All new papers)
- NEP-CTA-2009-09-26 (Contract Theory & Applications)
- NEP-DGE-2009-09-26 (Dynamic General Equilibrium)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Inderst, Roman, 2005. "Matching markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 121(2), pages 145-166, April.
- Patrick Legros & Andrew F. Newman, 2002.
"Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities,"
Boston University - Department of Economics - The Institute for Economic Development Working Papers Series
dp-149, Boston University - Department of Economics, revised Nov 2004.
- Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, 07.
- Patrick Legros & Andrew F. Newman, 2003. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Economics Working Papers 0030, Institute for Advanced Study, School of Social Science.
- 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.
- Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
- 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.
- Kenneth Burdett & Randall Wright, 1994.
169, Federal Reserve Bank of Minneapolis.
- Inderst, Roman, 2001. "Screening in a Matching Market," Review of Economic Studies, Wiley Blackwell, vol. 68(4), pages 849-68, October.
- Burdett Kenneth & Imai Ryoichi & Wright Randall, 2004. "Unstable Relationships," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-44, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jonathan Conning).
If references are entirely missing, you can add them using this form.