Working Paper: CEPR ID: DP8759
Authors: Kyungmin Kim; Philipp Kircher
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: cheap talk; commitment; competitive search; directed search
JEL Codes: C72; D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage commitments (J38) | firm productivity (D22) |
| cheap talk announcements (E60) | worker search behavior (J29) |
| firm productivity (D22) | efficient market outcomes (G14) |
| cheap talk announcements (E60) | efficient market outcomes (G14) |
| absence of commitment (J22) | efficiency of market outcomes (D61) |
| wage announcements (J31) | efficient allocation (D61) |
| worker search behavior (J29) | vacancy fillings (J63) |