Multiple Applications, Congestion Effects and Unemployment

Fernando Lefort

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: This paper studies a congestion effect operating in most search processes in which applicants are allowed to fill multiple applications. Increases in the number of one agent applicant decrease the probability faced by other searchers of a successful match, generating the congestion effect, The presence of this externality causes market equilibrium to be sub optimal. Compared to the cooperative equilibrium, the Nash equilibrium features too many applications per individual, and too low reservation wage. The macroeconomic implications of this suboptimality are, in general, a higher unemployment rate than the one a social planner would have gotten. The paper also provides evidence that this congestion effect operates in the U.S. labor market. Using the Employment Opportunity Pilot Projects household survey, I find after controlling for endogeneity, that an increase in the average number of applications per worker decreases the effectiveness of the individual search.

Date: 1997-03
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:13

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