Sorting in a Market for Lemons

Xiaoming Cai and Pieter Gautier

No 13031, CESifo Working Paper Series from CESifo

Abstract: Search frictions normally raise the bar for sorting: both random and directed search require complementarities strictly stronger than the supermodularity that suffices in Becker's (1973) frictionless model. We introduce private information into this setting: firms post wages without observing worker productivity, while better workers have better outside options, creating a market for lemons (Akerlof 1970). We show that this information friction pushes sorting the other way: attracting high-productivity workers without attracting low-productivity ones requires a higher wage paired with a lower job-finding probability, so vacancies fill faster. This strict ranking of vacancy-filling rates sorts the market positively whenever output is complementary in worker and firm quality. Becker's condition therefore suffices once more, and private information makes positive sorting easier to sustain than complete information does.

Keywords: competitive search; adverse selection; screening; sorting; positive assortative matching (search for similar items in EconPapers)
JEL-codes: C78 D82 D83 J64 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_13031

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