DP6837 Interviews and Adverse Selection
|Author(s):||Jens Josephson, Joel Shapiro|
|Publication Date:||May 2008|
|Keyword(s):||Asymmetric Information, Decentralized Labour Markets, Interview costs, Matching, Professional Labour Markets|
|JEL(s):||D82, J21, J44|
|Programme Areas:||Labour Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6837|
Interviewing in professional labour markets is a costly process for firms. Moreover, poor screening can have a persistent negative impact on firms' bottom lines and candidates' careers. In a simple dynamic model where firms can pay a cost to interview applicants who have private information about their own ability, potentially large inefficiencies arise from information-based unemployment, where able workers are rejected by firms because of their lack of offers in previous interviews. This effect may make the market less efficient than random matching. We show that the first best can be achieved using either a mechanism with transfers or one without transfers.