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Adverse selection and unraveling in common-value labor markets

Author

Listed:
  • Ely, Jeffrey C.

    () (Department of Economics, Northwestern University)

  • Siegel, Ron

    () (Department of Economics, Northwestern University)

Abstract

We investigate a common-value labor setting in which firms interview a worker prior to hiring. When firms have private information about the worker’s value and interview decisions are kept private, many firms may enter the market, interview, and hire with positive probability. When firms’ interview decisions are revealed, severe adverse selection arises. As a result, all firms except for the highest-ranked firm are excluded from the hiring process.

Suggested Citation

  • Ely, Jeffrey C. & Siegel, Ron, 2013. "Adverse selection and unraveling in common-value labor markets," Theoretical Economics, Econometric Society, vol. 8(3), September.
  • Handle: RePEc:the:publsh:964
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    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20130801/9507/299
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    References listed on IDEAS

    as
    1. Chakraborty, Archishman & Citanna, Alessandro & Ostrovsky, Michael, 2010. "Two-sided matching with interdependent values," Journal of Economic Theory, Elsevier, vol. 145(1), pages 85-105, January.
    2. Harstad, Ronald M, 1990. "Alternative Common-Value Auction Procedures: Revenue Comparisons with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 421-429, April.
    3. Josephson, Jens & Shapiro, Joel, 2016. "Costly interviews," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 10-15.
    4. Bruce C. Greenwald, 1986. "Adverse Selection in the Labour Market," Review of Economic Studies, Oxford University Press, vol. 53(3), pages 325-347.
    5. Tayfun Sonmez, 1999. "Strategy-Proofness and Essentially Single-Valued Cores," Econometrica, Econometric Society, vol. 67(3), pages 677-690, May.
    6. Masters, Adrian, 2009. "Matching with interviews," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 938-954, April.
    7. Robin S. Lee & Michael Schwarz, 2017. "Interviewing in two-sided matching markets," RAND Journal of Economics, RAND Corporation, vol. 48(3), pages 835-855, August.
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    Cited by:

    1. Josephson, Jens & Shapiro, Joel, 2016. "Costly interviews," International Journal of Industrial Organization, Elsevier, vol. 45(C), pages 10-15.

    More about this item

    Keywords

    Adverse selection; unraveling; interviews;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations

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