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Adverse Selection, Learning, And Competitive Search

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  • Karin Mayr‐Dorn

Abstract

I develop a model that allows for an analysis of the effects of time on adverse selection in the presence of search frictions. I find that, as a firm takes longer to adjust a worker's contract in response to learning about his type, inefficient overwork during the time before wage adjustment (probation) decreases. This provides a rationale for an optimal (minimum) probation period of about one month in the baseline scenario. Optimal probation duration varies with the degree of search frictions, the cost of effort, the relative productivity of different types of workers, and minimum wage regulations.

Suggested Citation

  • Karin Mayr‐Dorn, 2023. "Adverse Selection, Learning, And Competitive Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(1), pages 129-153, February.
    • Handle: RePEc:wly:iecrev:v:64:y:2023:i:1:p:129-153
    DOI: 10.1111/iere.12593
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