The Value of Information in Matching Tournaments∗

We study a two-sided, one-to-one matching market with a finite number of agents, candidates and firms. There is incomplete information on both sides of the market and, a priori, candidates are uncertain about their own characteristics. We present a model and methods that allow to analyze the value of information in matching tournaments in which agents engage in wasteful signaling to compete for match partners. A higher information level of market participants has two, possibly opposing, effects. It increases expected total match output but may also increase investments in wasteful signaling. Overall welfare may be decreasing but we identify conditions under which it is increasing. We characterize and compare the socially optimal and candidate optimal levels of information. We find that, if the number of candidates is large enough, the candidate optimal level is below the socially optimal information level. JEL classification: C78, D82, D83