Signalling Preferences in Interviewing Markets

Abstract

The process of match formation in matching markets can be divided into three parts: information sharing, investments in information acquisition, and the formation of matches based on available information. The last stage where agents are assumed to know their preferences has been studied in seminal work of Gale and Shapley (1962), and a model of second stage costly information acquisition is introduced and studied in Lee and Schwarz (2007). This paper focuses on the first stage – information sharing – and examines mechanisms which allow workers to signal their preferences over matching partners prior to the assignment of interviews. The incentives of firms and workers vis-a-vis information revelation are partially aligned – all other things being equal, a worker prefers to have an interview with a firm that is high in his preference ranking and a firm prefers to invest in interviewing a worker who ranks a firm highly because such worker is more likely to accept a job if
offered. However, the incentives are far from being perfectly aligned. For instance, if firms pay the full cost of interviewing, each worker would prefer to have as many interviews as possible, and in a world with bilateral communication no information is revealed as each workers would want to tell each firm that it is his first choice. But if communication is moderated through an intermediary or there is a restriction on the number of messages a worker can send, then cheap talk becomes informative. Currently existing market institutions that facilitate information exchange prior to interviewing are discussed.