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Discussion Paper Details

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Title: Efficient Cheap Talk in Directed Search: On the Non-essentiality of Commitment in Market Games

Author(s): Kyungmin Kim and Philipp Kircher

Publication Date: January 2012

Keyword(s): cheap talk, commitment, competitive search and directed search

Programme Area(s): Industrial Organization

Abstract: Directed search models are market games in which each firm announces a wage commitment to attract a worker. Miscoordination among workers generates search frictions, yet in equilibrium more productive firms post more attractive wage commitments to fill their vacancies faster, which yields constrained efficient outcomes. We show that commitment is not essential: Exactly the same efficient allocation can be sustained when announcements are pure cheap talk followed by a suitable subsequent wage-formation stage. The insights from existing commitment models extend unchanged to such a cheap-talk environment, even when workers differ in outside opportunities or observable common productivity.

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Bibliographic Reference

Kim, K and Kircher, P. 2012. 'Efficient Cheap Talk in Directed Search: On the Non-essentiality of Commitment in Market Games'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8759