Secret Search

We consider the problem faced by an organization that seeks to fill a high-profile position. We focus on a key decision about the recruitment process: should the organization make the identities of applicants public knowledge within the organization (“open search”) or keep the identities of applicants confidential (“secret search”). We analyse a very simple model that nonetheless yields a non-trivial problem: a single firm seeks to hire one of two possible candidates, whose abilities are known to the candidates themselves, but are unknown to the firm unless it conducts an open search process. Firms choose their search strategies, and post a salary. Candidates then decide whether to apply. A successful applicant earns the posted salary, but a rejected applicant under open search suffers a disutility cost. We characterise the unique Bayesian Nash equilibrium and find, among other things, that salaries are lower under secret search, and the expected ability level of applicants decreases as the posted salary increases under open search. We also show that when all candidates are willing to apply the salary is inefficiently low, and that the firm will, for some parameter values, choose secret search even when open search is more efficient.