Information Cascades on the Labor Market

19 Pages Posted: 17 Aug 2001

See all articles by Dorothea Kübler

Dorothea Kübler

Social Science Research Center (WZB); Technische Universität Berlin (TU Berlin) - Faculty of Economics and Management

Georg Weizsacker

Humboldt University Berlin; DIW Berlin

Date Written: June 9, 2001

Abstract

A model of herding behavior on the labor market is discussed where employers only receive signals with limited precision about the workers' types, but can observe previous employers' decisions. In particular, we study a situation where the employer and the worker can influence the signal probabilities, in the sense that the employer tries to increase the precision of the signal about the worker's type whereas the worker tries to get a good signal, independent of her type. In a two-period model, we derive conditions for an equilibrium in which only down-cascades occur, i.e., the second employer does not hire a worker with a bad history even if he receives a favorable private signal about the worker's type, but he does follow his own signal if the worker's history is good.

Keywords: herding, endogenous signals, hiring decisions

Suggested Citation

Kübler, Dorothea F. and Weizsacker, Georg, Information Cascades on the Labor Market (June 9, 2001). Available at SSRN: https://ssrn.com/abstract=279696 or http://dx.doi.org/10.2139/ssrn.279696

Dorothea F. Kübler (Contact Author)

Social Science Research Center (WZB) ( email )

Reichpietschufer 50
D-10785 Berlin, 10785
Germany
40 30 25491440 (Phone)

HOME PAGE: http://www.wzb.eu/mp/vam/people/dorothea_kuebler.de.htm

Technische Universität Berlin (TU Berlin) - Faculty of Economics and Management ( email )

D-10623 Berlin
Germany
+49 30 31425263 (Phone)

HOME PAGE: http://www.wiwi-experimente.tu-berlin.de/

Georg Weizsacker

Humboldt University Berlin ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

DIW Berlin

Mohrenstr. 58
Berlin
Germany

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