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Assortative matching through signals

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  • Poeschel, Friedrich

Abstract

In a model of sequential search with transferable utility, we allow heterogeneous agents to strategically choose a costless signal of their type. Search frictions are included as discounting and explicit search costs. Through signals, if only they are truthful, agents can avoid the inefficiencies of random search. Then the situation effectively approaches a setting without search frictions. We identify the condition under which signals are truthful and a unique separating equilibrium with perfect sorting arises despite frictions. We find that supermodularity of the match production function is a necessary and sufficient condition. This is a weaker condition than is needed for sorting in models without signals, which may explain why sorting is much more widespread in reality than existing models would suggest. Supermodularity functions here as both a sorting condition and a single-crossing property. The unique separating equilibrium in our model achieves nearly unconstrained efficiency despite frictions: agents successfully conclude their search after a single meeting, a stable matching results, and overall match output is maximised. --

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Paper provided by Verein für Socialpolitik / German Economic Association in its series Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century with number 62061.

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Date of creation: 2012
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Handle: RePEc:zbw:vfsc12:62061

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Blog mentions

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  1. Assortative matching through signals
    by Christian Zimmermann in NEP-DGE blog on 2013-01-19 23:06:20
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Cited by:
  1. Antoni, Manfred & Heineck, Guido, 2012. "Do Literacy and Numeracy Pay Off? On the Relationship between Basic Skills and Earnings," IZA Discussion Papers 6882, Institute for the Study of Labor (IZA).
  2. Uwe Blien & Susanne Messmann & Mark Trappmann, 2012. "Do reservation wages react to regional unemployment?," ERSA conference papers ersa12p662, European Regional Science Association.
  3. Dauth, Wolfgang & Findeisen, Sebastian & Suedekum, Jens, 2012. "The Rise of the East and the Far East: German Labor Markets and Trade Integration," IZA Discussion Papers 6685, Institute for the Study of Labor (IZA).
  4. Stops, Michael, 2012. "Job matching across occupational labour markets," IAB Discussion Paper, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany] 201227, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  5. Scholz, Theresa, 2012. "Employers' selection behavior during short-time work," IAB Discussion Paper, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany] 201218, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  6. Münich, Daniel & Srholec, Martin & Moritz, Michael & Schäffler, Johannes, 2012. "Mothers and Daughters: Heterogeneity of German direct investments in the Czech Republic. Evidence from the IAB-ReLOC survey," IAB Discussion Paper, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany] 201217, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  7. Dauth, Wolfgang & Südekum, Jens, 2012. "Profiles of local growth and industrial change : facts and an explanation," IAB Discussion Paper, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany] 201220, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  8. Carlos Canon, 2011. "Matching & Information Provision by One-Sided and Two-Sided Platforms," Working Papers, NET Institute 11-20, NET Institute, revised Oct 2011.

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