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Asymmetric information in a search model with social contacts

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  • Stupnytska, Yuliia

    (Center for Mathematical Economics, Bielefeld University)

Abstract

In this paper, the search model is proposed, in which homogeneous firms are uncertain about the job seekers' number of friends, who can help them in the job search (social capital). All workers have the same productivity and differ only in the social capital. A firm offers a take-it-or-leave-it wage contract to a worker after checking the worker's profile and her public number of non-fictitious social contracts in the Social Network System in the Internet. This number serves as a noisy signal of the social capital for firms and cannot be influenced by the worker only for signalling purpose. The model generates a positive relationship between the number of contacts in the Social Network System and the wage offered by firms in the equilibrium. In addition, the presence of firm's uncertainty with respect to workers' possibilities to find jobs through social contacts increases overall social welfare.

Suggested Citation

  • Stupnytska, Yuliia, 2015. "Asymmetric information in a search model with social contacts," Center for Mathematical Economics Working Papers 548, Center for Mathematical Economics, Bielefeld University.
    • Handle: RePEc:bie:wpaper:548
    as

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    References listed on IDEAS

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    Keywords

    asymmetric information; social capital; uncertainty; Social Network System; Facebook; Linkedin; wage contract; social welfare; wage dispersion;
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