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Matching Markets with Signals

  • Alexey Kushnir

    (Pennsylvania State University)

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.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2009.39.

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Date of creation: May 2009
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Handle: RePEc:fem:femwpa:2009.39
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