When workers send applications to vacancies they create a bipartite network.
Coordination frictions arise if workers and firms only observe their own links. We
show that those frictions and the wage mechanism are in general not independent.
Wage mechanisms that give rise to ex ante wage dispersion are inefficient in terms
of network formation and only wage mechanisms that allow for ex post competition
generate the maximum matching on a realized network. Finally, we provide
a decentralized wage mechanism that implements the social planner’s solution and
generates the maximum expected number of matches given market tightness and
search intensity.
Link to paper