Business Intelligence

Harmful Signaling In Matching Markets

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Executive Summary

Some labor markets have recently developed formal signaling mechanisms, e.g. the signaling for interviews in the job market for new Ph.D. economists. The authors evaluate the effect of such mechanisms on two-sided matching markets by considering a game of incomplete information between firms and workers. Workers have almost aligned preferences over firms: each worker has "Typical" commonly known preferences with probability close to one and "Atypical" idiosyncratic preferences with the complementary probability close to zero. Firms have commonly known preferences over workers. They show that the introduction of a signaling mechanism is harmful for this environment.

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