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Credible Signaling via Transfers, Job Application Fees

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Abstract

How low might be the resource costliness of making signals credible? Using a job market as an example, We build a signaling model to determine the extent to which a transfer from an applicant might replace a resource cost as an equilibrium method of achieving signal credibility. As long as a firm’s claim to be hiring for an open position is credible, and profitability of the hiring process per se is limited to an application fee, the firm has an incentive to use the properly calibrated fee to implement a separating equilibrium. Applicant risk aversion does not necessarily discourage a monopsonist potential employer from using an application fee, but a firm hiring in a competitive labor market with risk-averse applicants may prefer a pooling equilibrium, hiring all applicants at their average productivity. Partial extension to a model with third-party assistance (a headhunter or a job board) is possible.

Suggested Citation

  • Fan Yang & Ron Harstad, 2016. "Credible Signaling via Transfers, Job Application Fees," Working Papers 1610, Department of Economics, University of Missouri.
  • Handle: RePEc:umc:wpaper:1610
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    Keywords

    costly; signaling; asymmetric information;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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