We thank Debraj Ray and three referees for greatly improving the paper. We thank Jeremy Bulow, Jacques Crémer, Wioletta Dziuda, Jan Eeckhout, Drew Fudenberg, Hugo Hopenhayn, Ed Lazear, Paul Klemperer, Preston McAfee, Benny Moldovanu, Canice Prendergast, Ariel Rubinstein, Yuval Salant, Michael Schwarz, Steve Tadelis, and seminar participants at Berkeley, CSIO-IDEI, Hebrew University, Northwestern, NYU, Stanford, Tel-Aviv University, UCL, and UCLA for helpful comments and suggestions.
Adverse selection and unraveling in common-value labor markets
Article first published online: 18 SEP 2013
Copyright © 2013 Jeffrey C. Ely and Ron Siegel
Volume 8, Issue 3, pages 801–827, September 2013
How to Cite
Ely, J. C. and Siegel, R. (2013), Adverse selection and unraveling in common-value labor markets. Theoretical Economics, 8: 801–827. doi: 10.3982/TE964
- Issue published online: 18 SEP 2013
- Article first published online: 18 SEP 2013
- Submitted 2011-3-16. Final version accepted 2012-10-11. Available online 2012-10-11.
- Adverse selection;
We investigate a common-value labor setting in which firms interview a worker prior to hiring. When firms have private information about the worker's value and interview decisions are kept private, many firms may enter the market, interview, and hire with positive probability. When firms' interview decisions are revealed, severe adverse selection arises. As a result, all firms except for the highest-ranked firm are excluded from the hiring process.