Sunday, August 26, 2018

Signaling and matching in an online labor market, by Horton and Johari

Here's a paper on signaling and matching in a prominent but un-named online labor market that is readily identifiable.

Engineering a Separating Equilibrium

John J. Horton and Ramesh Johari
August 14, 2018

Abstract: This  paper  explores  whether  platform-created  signaling opportunities can move designed markets to more desirable equilibria.  In a large on-line  labor  market,  buyers  were  given  the  opportunity  to  signal  their relative  preferences  over  price  and  quality.   The  intervention  caused substantial sorting by sellers to buyers of the right “type.”  However, sellers clearly tailored their bids to the type of buyer they faced, bidding up against sellers with a high revealed willingness to pay.  Despite this “markup,” a separating equilibrium was sustained over time, suggesting buyers found revelation incentive compatible.  We find evidence that informative signaling improved matching efficiency and match quality.

"The signaling opportunity was simple:  when posting a job opening,  employers selected one of three “tiers” to describe the kinds of applicants they were most interested in:  (1) Entry level:  “I am looking for [workers] with the lowest rates.”;  (2) Intermediate:  “I am looking for a mix of experience and value.”; (3) Expert:  “I am willing to pay higher rates for the most experienced [workers].”  We refer to these tiers as “low,” “medium,” and “high,” respectively.   When  the  signaling  opportunity  was  introduced  market-wide  (which occurred after an experimental period), the tier choice was revealed publicly to all job-seeking workers."

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