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Harmful Signaling in Matching Markets


Kushnir, Alexey (2010). Harmful Signaling in Matching Markets. Working paper series / Institute for Empirical Research in Economics No. 509, University of Zurich.

Abstract

Some labor markets have recently developed formal signaling mechanisms, e.g. the signaling for interviews in the job market for new Ph.D. economists. We evaluate the effect of such mechanisms on two-sided matching markets by considering a game of incomplete information between firms and workers. Workers have almost aligned preferences over firms: each worker has 'typical' commonly known preferences with probability close to one and 'atypical' idiosyncratic preferences with the complementary probability close to zero. Firms have commonly known preferences over workers. We show that the introduction of a signaling mechanism is harmful for this environment. Though signals transmit previously unavailable information, they also facilitate information asymmetry that leads to coordination failures. As a result, the introduction of a signaling mechanism lessens the expected number of matches when signals are informative.

Abstract

Some labor markets have recently developed formal signaling mechanisms, e.g. the signaling for interviews in the job market for new Ph.D. economists. We evaluate the effect of such mechanisms on two-sided matching markets by considering a game of incomplete information between firms and workers. Workers have almost aligned preferences over firms: each worker has 'typical' commonly known preferences with probability close to one and 'atypical' idiosyncratic preferences with the complementary probability close to zero. Firms have commonly known preferences over workers. We show that the introduction of a signaling mechanism is harmful for this environment. Though signals transmit previously unavailable information, they also facilitate information asymmetry that leads to coordination failures. As a result, the introduction of a signaling mechanism lessens the expected number of matches when signals are informative.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:September 2010
Deposited On:29 Nov 2011 15:09
Last Modified:07 Dec 2017 10:00
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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