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Simultaneous Search and Network Efficiency

  • Gautier, Pieter A.

    ()

    (VU University Amsterdam)

  • Holzner, Christian

    ()

    (Ifo Institute for Economic Research)

When workers send applications to vacancies they create a network. Frictions arise because workers typically do not know where other workers apply to and firms do not know which candidates other firms consider. The first coordination friction affects network formation, while the second coordination friction affects network clearing. We show that those frictions and the wage mechanism are in general not independent. The wage mechanism determines both the distribution of networks that can arise and the number of matches on a given network. Equilibria that exhibit wage dispersion are inefficient in terms of network formation. Under complete recall (firms can go back and forth between all their candidates) only wage mechanisms that allow for ex post Bertrand competition generate the maximum matching on a realized network.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5859.

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Length: 67 pages
Date of creation: Jul 2011
Date of revision:
Handle: RePEc:iza:izadps:dp5859
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  26. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December.
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