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Efficient Cheap Talk in Directed Search: On the Non-essentiality of Commitment in Market Games

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  • Kircher, Philipp
  • Kim, Kyungmin

Abstract

Directed search models are market games in which each firm announces a wage commitment to attract a worker. Miscoordination among workers generates search frictions, yet in equilibrium more productive firms post more attractive wage commitments to fill their vacancies faster, which yields constrained efficient outcomes. We show that commitment is not essential: Exactly the same efficient allocation can be sustained when announcements are pure cheap talk followed by a suitable subsequent wage-formation stage. The insights from existing commitment models extend unchanged to such a cheap-talk environment, even when workers differ in outside opportunities or observable common productivity.

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  • Kircher, Philipp & Kim, Kyungmin, 2012. "Efficient Cheap Talk in Directed Search: On the Non-essentiality of Commitment in Market Games," CEPR Discussion Papers 8759, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8759
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    References listed on IDEAS

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    Cited by:

    1. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2014. "Competing with Asking Prices," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-37, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. Lester, Benjamin & Visschers, Ludo & Wolthoff, Ronald, 2017. "Competing with asking prices," Theoretical Economics, Econometric Society, vol. 12(2), May.
    3. Gautier, Pieter & Holzner, Christian, 2011. "Simultaneous Search and Network Efficiency," CEPR Discussion Papers 8522, C.E.P.R. Discussion Papers.
    4. Matthew Doyle & Jacob Wong, 2013. "Wage Posting Without Full Commitment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 231-252, April.
    5. Derek Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," 2012 Meeting Papers 401, Society for Economic Dynamics.

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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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