# 11-092/3 (2011-07-12)

Author(s)
Pieter A. Gautier, VU University Amsterdam, CEPR, IZA; Christian L. Holzner, University of Munich, Ifo Institute for Economic Research, CESifo
Keywords:
Efficiency, network clearing, random bipartite network formation, simultaneous
JEL codes:
D83, D85, E24, J64

When workers send applications to vacancies they create a network. Frictionsarise because workers typically do not know where other workers apply to and firmsdo not know which candidates other firms consider. The first coordination frictionaffects network formation, while the second coordination friction affects networkclearing. We show that those frictions and the wage mechanism are in general notindependent. The wage mechanism determines both the distribution of networksthat can arise and the number of matches on a given network. Equilibria that exhibitwage dispersion are inefficient in terms of network formation. Under complete recall(firms can go back and forth between all their candidates) only wage mechanismsthat allow for ex post Bertrand competition generate the maximum matching on arealized network.