Matching Markets with Signals

A costless signaling mechanism has been proposed as a device to improve welfare in decentralized two-sided matching markets. An example of such an environment is a job market for new Ph.D. economists. We study a market game of incomplete information between firms and workers and show that costless signaling is actually harmful in some matching markets. Specifically, if agents have very similar preferences, signaling lessens the total number of matches and the welfare of firms, as well as it affects ambiguously the welfare of workers. These results run contrary to previous findings that costless signaling facilitates match formation.Matching Markets, Signaling

Information Channels in Labor Markets. On the Resilience of Referral Hiring

Economists and sociologists disagree over markets' potential to assume functions typically performed by networks of personal connections, first among them the transmission of information. This paper begins from a model of labor markets where social ties are stronger between similar individuals and firms employing productive workers prefer to rely on personal referrals than to hire on the anonymous market (Montgomery (1991). However, we allow workers in the market to engage in a costly action that can signal their high productivity, and ask whether the possibility of signaling reduces the reliance on the network. We find that the network is remarkably resilient. To be effective signaling must fulfill two contradictory requirements: unless the signal is extremely precise, it must be expensive or it is not informative; but it must be cheap, or the network can undercut it.Networks, Signaling, Referral hiring, Referral premium

Assortative matching through signals

We model signalling in two-sided sequential search with heterogeneous agents and transferable utility. Search via meetings is time-consuming and thereby costly due to discounting. Search via signals is costless, so that agents can avoid almost all search costs if only the signals are truthful. We show that signals will indeed be truthful if the match output function is su ciently super- modular. The unique separating equilibrium is then characterised by perfect positive assortative matching despite the search frictions. In this equilibrium, agents successfully conclude their search after a single meeting, and overall match output is maximised. These results continue to hold when there are also explicit search costs in addition to discounting.assortative matching ; supermodularity ; signals

Quality revealing versus overstating in equity crowdfunding

We gratefuly acknowledge the financial support from the Social Sciences and Humanities Research Council (SSHRC) of Canada.Peer reviewedPostprin

Signaling the Competencies of High School Students to Employers

[Excerpt] The fundamental cause of the low effort level of American students, parents, and voters in school elections is the absence of good signals of effort and accomplishment and the consequent lack of rewards for learning. In most other advanced countries mastery of the curriculum is assessed by examinations that are set and graded at the national or regional level. Grades on these exams signal the student\u27s achievement to employers and colleges and influence the jobs that graduates get and the universities and programs to which they are admitted. Exam results also influence school reputations and in some countries the number of students applying for admission to the school. In the United States, by contrast, students take aptitude tests that are not intended to assess the learning that has occurred in most of the classes taken in high school. The primary signals of academic achievement are diplomas awarded for time spent in school and grades and rank in class—criteria that assess achievement relative to other students in the school or classroom, not relative to an external standard

Some Simple Economics of Crowdfunding

It is not surprising that the financing of early-stage creative projects and ventures is typically geographically localized since these types of funding decisions are usually predicated on personal relationships and due diligence requiring face-to-face interactions in response to high levels of risk, uncertainty, and information asymmetry. So, to economists, the recent rise of crowdfunding - raising capital from many people through an online platform - which offers little opportunity for careful due diligence and involves not only friends and family but also many strangers from near and far, is initially startling. On the eve of launching equity-based crowdfunding, a new market for early-stage finance in the U.S., we provide a preliminary exploration of its underlying economics. We highlight the extent to which economic theory, in particular transaction costs, reputation, and market design, can explain the rise of non-equity crowdfunding and offer a framework for speculating on how equity-based crowdfunding may unfold. We conclude by articulating open questions related to how crowdfunding may affect social welfare and the rate and direction of innovation

Anonymous Rituals

Religion and ritual have been characterized as costly ways for conditional cooperators to signal their type, and thus identify and interact with one another. But an effective signal may be prohibitively expensive: if the cost of participation is too small, freeriders may send the signal and behave selfishly later. However, if the ritual reveals only the average level of signaling in a group, free-riders can behave selfishly without being detected, and even a low cost signal can separate types. While individuals cannot be screened out, members can learn the group�s profile of types. Under specified conditions, this information gain leads to greater cooperation and hence increases expected welfare. Furthermore, if crowding is unimportant relative to the conditional cooperation term, anonymous rituals will be preferred to ones which reveal individuals� behavior. Examples of anonymous institutions include church collections, voting, music, dance, and military customs.