TITLE:
Endogenous Ranking in the Two-Sector Urn-Ball Matching Process
AUTHORS:
Giuseppe Rose
KEYWORDS:
Matching Function, Urn-Ball Model, Bayesian Nash Equilibrium
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.3,
February
12,
2018
ABSTRACT: This
paper contributes to the debate concerning micro-foundations of matching
functions in frictional labor markets. The focus is on a particular matching
regime, i.e., the so-called urn-ball
process. It is shown that in a twosector economy, even in the presence of
heterogeneous workers, the assumption of applicants-ranking may be misleading.
Instead, the choice concerning the adoption of either ranking or no-ranking
behavior is endogenous and it is affected by both the tightness of the two
sectors and the composition of the labor force in terms of skills. Moreover it
is proved that exogenous shocks may change the form of the matching function.
This result casts additional doubts on the assumption of exogenous matching
function often made in empirical works aimed at assessing the effectiveness of
policy measures.