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American Economic Journal: Applied Economics: Vol. 5 No. 4 (October 2013)

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Asymmetric Information between Employers

Article Citation

Kahn, Lisa B. 2013. "Asymmetric Information between Employers." American Economic Journal: Applied Economics, 5(4): 165-205.

DOI: 10.1257/app.5.4.165

Abstract

This study explores whether potential employers have the same information about worker ability as the incumbent firm. I develop a model of asymmetric learning that nests the symmetric learning case and allows the degree of asymmetry to vary. I then show how predictions in the model can be tested with compensation data. Using the NLSY, I test the model and find strong support for asymmetric information. My estimates imply that in one period, outside firms reduce the average expectation error over worker ability by only a third of the reduction made by incumbent firms.

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Authors

Kahn, Lisa B. (Yale U and IZA, Bonn)

JEL Classifications

D82: Asymmetric and Private Information; Mechanism Design
J24: Human Capital; Skills; Occupational Choice; Labor Productivity
J31: Wage Level and Structure; Wage Differentials
M12: Personnel Management; Executives; Executive Compensation

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