Efficient Cheap Talk in Directed Search: On the Non-essentiality of Commitment in Market Games

Philipp Kircher and Kyungmin Kim

No 8759, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Directed search models are market games in which each firm announces a wage commitment to attract a worker. Miscoordination among workers generates search frictions, yet in equilibrium more productive firms post more attractive wage commitments to fill their vacancies faster, which yields constrained efficient outcomes. We show that commitment is not essential: Exactly the same efficient allocation can be sustained when announcements are pure cheap talk followed by a suitable subsequent wage-formation stage. The insights from existing commitment models extend unchanged to such a cheap-talk environment, even when workers differ in outside opportunities or observable common productivity.

Keywords: Directed search; Commitment; Cheap talk; Competitive search (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-dge and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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