DP8522 Simultaneous Search and Network Efficiency

Author(s): Pieter A. Gautier, Christian Holzner
Publication Date: August 2011
Keyword(s): Efficiency, network clearing, random bipartite network formation, simultaneous search
JEL(s): D83, D85, E24, J64
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8522

When workers send applications to vacancies they create a network. Frictions arise if workers do not know where other workers apply to (this affects network creation) and firms do not know which candidates other firms consider (this affects network clearing). We show that those frictions and the wage mechanism are in general not independent. 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.