Andrew Bongjune Choi

Abstract:  We study a principal who commits to inform an agent about what the principal will eventually do. The principal wishes to promote the agent if and only if the state is good, and gradually receives private information about the state. The agent always wants promotion, but faces a decreasing outside option and would rather leave if he expects not to be promoted. The principal optimally induces the agent to stay by committing to commit, that is, by committing today to tell the agent tomorrow about his chances of promotion the day after. When the agent has a high initial outside option, with some probability, the principal promotes the agent regardless of her information—even if she realizes early that the state will turn out to be bad. The principal may ask the agent to stay until she fully observes the state, only to deny him promotion; this does not necessarily mean that the principal leads the agent on. We apply our results to worker retention, relationship-specific investment, and forward guidance.

Abstract:  We introduce search friction into the two-sided matching model with transfers by requiring that a worker-firm pair can match only if they are acquainted. Each worker may conduct a costly search to acquaint himself with new firms. A matching is stable if there are no blocking pairs among acquainted agents and no worker wishes to conduct a search. A matching is efficient if it maximizes total surplus given the acquaintance of agents, and no searching can increase total surplus net of search cost in expectation. All stable matchings are efficient, but not all efficient assignments can be made stable.

Presentations: Econometric Society Meeting (WUSTL, CUHK)