Paper #1093

Title:

Interviews and adverse selection

Authors:

Jens Josephson and Joel Shapiro

Date:

May 2008

Abstract:

Interviewing in professional labor 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.

Keywords:

Decentralized Labor Markets, Professional Labor Markets, Asymmetric Information, Interview costs, Matching

JEL codes:

D82, J21, J44

Area of Research:

Microeconomics / Labour, Public, Development and Health Economics

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