1 research outputs found
Dynamic Models of Reputation and Competition in Job-Market Matching
A fundamental decision faced by a firm hiring employees - and a familiar one
to anyone who has dealt with the academic job market, for example - is deciding
what caliber of candidates to pursue. Should the firm try to increase its
reputation by making offers to higher-quality candidates, despite the risk that
the candidates might reject the offers and leave the firm empty-handed? Or
should it concentrate on weaker candidates who are more likely to accept the
offer? The question acquires an added level of complexity once we take into
account the effect one hiring cycle has on the next: hiring better employees in
the current cycle increases the firm's reputation, which in turn increases its
attractiveness for higher-quality candidates in the next hiring cycle. These
considerations introduce an interesting temporal dynamic aspect to the rich
line of research on matching models for job markets, in which long-range
planning and evolving reputational effects enter into the strategic decisions
made by competing firms.
We develop a model based on two competing firms to try capturing as cleanly
as possible the elements that we believe constitute the strategic tension at
the core of the problem: the trade-off between short-term recruiting success
and long-range reputation-building; the inefficiency that results from
underemployment of people who are not ranked highest; and the influence of
earlier accidental outcomes on long-term reputations.
Our model exhibits all these phenomena in a stylized setting, governed by a
parameter q that captures the difference in strength between the two top
candidates in each hiring cycle. We show that when q is relatively low the
efficiency of the job market is improved by long-range reputational effects,
but when q is relatively high, taking future reputations into account can
sometimes reduce the efficiency