Working Paper: NBER ID: w15006
Authors: Muriel Niederle; Alvin E. Roth; Utku Ünver
Abstract: Markets sometimes unravel, with offers becoming inefficiently early. Often this is attributed to competition arising from an imbalance of demand and supply, typically excess demand for workers. However this presents a puzzle, since unraveling can only occur when firms are willing to make early offers and workers are willing to accept them. We present a model and experiment in which workers' quality becomes known only in the late part of the market. However, in equilibrium, matching can occur (inefficiently) early only when there is comparable demand and supply: a surplus of applicants, but a shortage of high quality applicants.
Keywords: labor markets; unraveling; demand and supply; experimental investigation
JEL Codes: C78; C9; C92
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| comparable demand and supply (J20) | unraveling occurs (C29) |
| quality of applicants (I24) | firms may hire early to secure high-quality candidates (M51) |
| excess supply of applicants (J23) | firms may rush to make offers (G34) |
| firms may rush to make offers (G34) | early but inefficient matches (C78) |
| excess demand (D12) | firms are less likely to make early offers (M51) |
| supply and demand conditions (J20) | timing of offers (C41) |
| timing of offers (C41) | efficiency of matching (C78) |
| early matching (C78) | qualitywise inefficiencies (L15) |