Business Intelligence

Preference Signaling In Matching Markets

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Executive Summary

Many labor markets share three stylized facts: employers cannot give full attention to all candidates; candidates are ready to provide information about their preferences for particular employers, and employer's value and are prepared to act on this information. In this paper the authors study how a signaling mechanism, where each worker can send a signal of interest to one employer, facilitates matches in such markets. They find that introducing a signaling mechanism increases the welfare of workers and the number of matches, while the change in firm welfare is ambiguous. A signaling mechanism adds the most value for balanced markets.

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