Competitive Pressure and Lying in Search Markets

Matthew Baker and Ingmar Nyman ()

No 426, Economics Working Paper Archive at Hunter College from Hunter College Department of Economics

Abstract: We study a labor market in which principals and agents must search for a trading partner, and agents have private information about the value of a match. We show that competitive pressure can induce agents to lie and overstate the value of the match. This leads to insufficient frictional unemployment and search, and lower average utility. The resulting social loss increases with the accuracy of the private information and the ease with which matches are created, and decreases with the time-value of money. An unemployment subsidy can eliminate the inefficiency. Changing how the surplus is split between principal and agent, by contrast, has no effect on the agents’ incentive to lie.

Keywords: Search; Private Information; Competition (search for similar items in EconPapers)
JEL-codes: D82 D83 J64 (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-cta and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:htr:hcecon:426

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