Credible Signaling via Transfers, Job Application Fees

Fan Yang and Ronald Harstad

No 1610, Working Papers from Department of Economics, University of Missouri

Abstract: How low might be the resource costliness of making signals credible? Using a job market as an example, We build a signaling model to determine the extent to which a transfer from an applicant might replace a resource cost as an equilibrium method of achieving signal credibility. As long as a firm’s claim to be hiring for an open position is credible, and profitability of the hiring process per se is limited to an application fee, the firm has an incentive to use the properly calibrated fee to implement a separating equilibrium. Applicant risk aversion does not necessarily discourage a monopsonist potential employer from using an application fee, but a firm hiring in a competitive labor market with risk-averse applicants may prefer a pooling equilibrium, hiring all applicants at their average productivity. Partial extension to a model with third-party assistance (a headhunter or a job board) is possible.

Keywords: costly; signaling; asymmetric information (search for similar items in EconPapers)
JEL-codes: C72 D82 J24 J31 (search for similar items in EconPapers)
Pages: 31 pgs.
Date: 2016-07-26
New Economics Papers: this item is included in nep-cse, nep-gth and nep-lma
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