Multiple applications in an equilibrium search model: Which matching algorithm is chosen by firms? Is the chosen matching algorithm efficient?

• Applicant: Professor Dr. Christian Holzner
• Subject Area: Economic Theory
• Term: from 2010 to 2011
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 184177184

A large part of the search and matching literature analyzes externalities resulting from the entry decision of firms and workers’ search intensity choices and investigates the role of government policies and labor market institutions in reducing the inefficiencies caused by these externalities. The kind of externalities present and the severity of an externality and therefore the pro-posed government policies heavily depend on the kind of search and matching framework used. The proposed research project analyses the efficiency properties of a relatively new strand of the literature that uses a framework where workers send multiple applications to different firms and therefore describes the labor market in a more realistic way. The project aims at deriving an algorithm that ensures a stable and efficient matching on the network formed by applicants and vacancies, if workers send multiple applications and if firms can communicate with all applicants. A matching is defined to be stable on the network, if it does not leave a job vacant while one of its applicants starts to work at a lower wage or re-mains unemployed . I define a matching to be efficient on the network, if a firm in the network does not remain vacant should a worker in the network remain unmatched. The aim of the proposed research project is to characterize the number of matches and the wage distribution resulting from the stable and efficient matching algorithm, to show that firms prefer this matching algorithm over other mechanisms and to analyze whether individual decisions concerning the number of applications send to different employers and the number of vacancies created by firms are efficient from a social welfare perspective.

• DFG Programme: Research Fellowships
• International Connection: Netherlands
• Host: Professor Dr. Pieter A. Gautier