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Asymmetric information and search frictions: A neutrality result

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  • Rao, Neel

Abstract

This paper integrates asymmetric information between firms into a canonical model of on-the-job search. Workers are heterogeneous in ability, but not all employers observe a worker’s type. Wage dispersion caused by search frictions makes the equilibrium wage distribution insensitive to informational asymmetries. Hence, the equilibrium outcome may be the same as when a worker’s ability is known to every firm. The supportability of the full information outcome depends on market parameters related to productivity, knowledge, and search. The theoretical results elucidate an empirical puzzle about demographic differences in asymmetric information between employers.

Suggested Citation

  • Rao, Neel, 2016. "Asymmetric information and search frictions: A neutrality result," Economics Letters, Elsevier, vol. 147(C), pages 138-141.
    • Handle: RePEc:eee:ecolet:v:147:y:2016:i:c:p:138-141
    DOI: 10.1016/j.econlet.2016.08.040
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    References listed on IDEAS

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    More about this item

    Keywords

    Asymmetric information; Human capital; Equilibrium search; Wage dispersion;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs

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