Adv. Math. Econ. Volume 2, pp.41-66 (2000)

Job matching: a multi-principal, multi-agent model

Tatsuro Ichiishi1 and Semih Koray2
1 Department of Economics, Ohio State University, 1945 North High Street, Columbus, OH 43210-1172, USA
2 Department of Economics, Faculty of Economics, Administrative and Social Sciences, Bilkent University, 06533 Bilkent, Ankara, Turkey
A version of Spence's "job market" model is constructed and studied: There are two groups of individuals, the job applicants (the informed), and the incumbents (the uninformed). The applicants have private information about their types, and their actions (choice of education levels) serve as messages. The incumbents (employers) have only one type, and are endowed with differentiated information structures on actions of the informed. A contract is a pair of an education level and a wage level, and a wage schedule specifies a contract for each education level. The incumbent set is finite, and is fixed throughout the analysis (so free entry/exit is excluded). The paper studies endogenous determination of the wage schedules offered by the incumbents. The applicants behave noncooperatively. Two equilibrium concepts are proposed: a noncooperlative equilibrium, a version of the Nash equilibrium which postulates noncooperative and passive behavior of the incumbents, and a cooperative equilibrium, a version of the strong equilibrium which postulates cooperative and passive behavior of the incumbents. It is shown that a cooperative equilibrium does not exist. By studying noncooperative equilibria, which do exist in many cases, it is concluded that it is not the informational advantage (defined as the abundance of measurable sets), but rather possession of the right information (in the sense that it best serves the needs of applicants) that enables an incumbent to win.
Key Words:
job matching, multi-principal multi-agent model, hidden information, hidden action, signalling