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Assortative matching through signals

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  • Poeschel, Friedrich

Abstract

In a model of sequential search with transferable utility, we allow heterogeneous agents to strategically choose a costless signal of their type. Search frictions are included as discounting and explicit search costs. Through signals, if only they are truthful, agents can avoid the inefficiencies of random search. Then the situation effectively approaches a setting without search frictions. We identify the condition under which signals are truthful and a unique separating equilibrium with perfect sorting arises despite frictions. We find that supermodularity of the match production function is a necessary and sufficient condition. This is a weaker condition than is needed for sorting in models without signals, which may explain why sorting is much more widespread in reality than existing models would suggest. Supermodularity functions here as both a sorting condition and a single-crossing property. The unique separating equilibrium in our model achieves nearly unconstrained efficiency despite frictions: agents successfully conclude their search after a single meeting, a stable matching results, and overall match output is maximised.

Suggested Citation

  • Poeschel, Friedrich, 2012. "Assortative matching through signals," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62061, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc12:62061
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    References listed on IDEAS

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    1. Assortative matching through signals
      by Christian Zimmermann in NEP-DGE blog on 2013-01-20 05:06:20

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    Cited by:

    1. Münich, Daniel & Srholec, Martin & Moritz, Michael & Schäffler, Johannes, 2012. "Mothers and Daughters: Heterogeneity of German direct investments in the Czech Republic. Evidence from the IAB-ReLOC survey," IAB Discussion Paper 201217, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    2. Wolfgang Dauth & Sebastian Findeisen & Jens Suedekum, 2014. "The Rise Of The East And The Far East: German Labor Markets And Trade Integration," Journal of the European Economic Association, European Economic Association, vol. 12(6), pages 1643-1675, December.
    3. Blien, Uwe & Messmann, Susanne & Trappmann, Mark, 2012. "Do reservation wages react to regional unemployment?," IAB Discussion Paper 201222, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    4. Dauth, Wolfgang & Südekum, Jens, 2012. "Profiles of local growth and industrial change : facts and an explanation," IAB Discussion Paper 201220, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    5. Scholz, Theresa, 2012. "Employers' selection behavior during short-time work," IAB Discussion Paper 201218, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    6. Michael Stops, 2014. "Job matching across occupational labour markets," Oxford Economic Papers, Oxford University Press, vol. 66(4), pages 940-958.
    7. Antoni, Manfred & Heineck, Guido, 2012. "Do literacy and numeracy pay off? On the relationship between basic skills and earnings," BERG Working Paper Series 86, Bamberg University, Bamberg Economic Research Group.
    8. Carlos Canon, 2011. "Matching & Information Provision by One-Sided and Two-Sided Platforms," Working Papers 11-20, NET Institute, revised Oct 2011.

    More about this item

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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