Signaling in Matching Markets

We evaluate the e ect of costless preference signaling in two-sided matching markets between rms and workers. We consider a game of incomplete information with rm segments. Workers agree on the ranking of rms across segments, but have idiosyncratic and uniformly distributed preferences within segments. Firm preferences over workers are idiosyncratic and uniformly distributed. Each worker can send a limited number of signals to rms. Then, each rm makes an o er to a worker. Finally, workers choose an o er from those available to them. We show that, on average, introducing a signaling mechanism increases both the expected number of matches as well as the expected welfare of workers for this environment. The welfare of rms, on the other hand, changes ambiguously. In addition, the signaling mechanism adds the most value for markets wherein the number of rms and the number of workers are of roughly the same magnitude. Furthermore, the optimal number of signals the number of signals that maximizes the expected increase in the number of matches increases in the number of worker positions. Finally, additional periods of interaction between rms and workers decrease the impact of signaling. JEL classi cation: C72, C78, D80, J44