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Matching Markets with Signals

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  • Kushnir, Alexey

Abstract

A costless signaling mechanism has been proposed as a device to improve welfare in decentralized two-sided matching markets. An example of such an environment is a job market for new Ph.D. economists. We study a market game of incomplete information between firms and workers and show that costless signaling is actually harmful in some matching markets. Specifically, if agents have very similar preferences, signaling lessens the total number of matches and the welfare of firms, as well as it affects ambiguously the welfare of workers. These results run contrary to previous findings that costless signaling facilitates match formation.

Suggested Citation

  • Kushnir, Alexey, 2009. "Matching Markets with Signals," Sustainable Development Papers 50730, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemdp:50730
    DOI: 10.22004/ag.econ.50730
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    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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