Location:

University Évry Paris-Saclay, room Malinvaud (312), bâtiment Ile-de-France

Abstract:

This paper studies how information asymmetry arises endogenously in a sequential search model and how it generates adverse selection and market inefficiency. A graduate sequentially samples employers and receives noisy signals about her type; both parties observe each current signal, but only the graduate retains the full signal history. As search continues, information asymmetry widens, prompting employers to lower wage offers and sometimes causing the graduate to exit the market. We show that lower search costs intensify this inefficiency. Two mechanisms restore efficiency in limiting cases: expanding the market to a very large size and introducing minimal noise into the signal structure. In both cases, a slight information advantage for the graduate combined with competition among employers raises wage offers and increases the graduate's surplus.