EHP: Market Culture, Performance, and the Timing of Transactions

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This project will investigate matching processes in centralized and decentralized labor markets, and other matching markets, such as college admissions. The goal is to better understand labor markets, and how efficiently they match people with positions (and incidentally how much incentive they give students to prepare themselves for positions). The empirical part of the investigation will include entry level labor markets for physicians in the U.S. (including both first positions, and specialties, such as gastroenterology) and in Britain, as well as entry level labor markets for lawyers (with particular attention to clerkships in Federal appellate courts in the U.S., and for "articling" positions in Canada), dentists, clinical psychologists, and new graduates of elite Japanese universities. Past work has shown that each of these markets had a period in its history which exhibited the phenomenon of unraveling of transaction times ("jumping the gun"), in which market transactions became earlier and earlier in response to competition, resulting in various types of market failure. The present institutional structure of each of these diverse markets, whose organizations range from almost completely centralized to almost completely decentralized, is in substantial part a response to this history. The project will analyze the informal rules by which markets are organized, and how these interact with supply and demand to affect the timing of transactions. Even decentralized markets may have elaborate, sometimes explicit rules and norms about how and when offers will be made, accepted and rejected. For example, in some labor markets, it is conventional for employers to make exploding offers, to which candidates must reply before receiving other offers, while in other markets it is customary for all offers to remain open long enough to allow candidates to compare multiple offers. Similarly, norms differ concerning the circumstances under which a candidate may honorably change his mind about an offer he has accepted. These differences can influence who makes offers to whom, at what time, and what outcome is produced. This investigation proposes to explore these issues and how they impact particular markets) using field observation, laboratory experiments, and game theoretic models.The results of the present study should help illuminate recent developments in markets that have experienced timing problems, such as the market for clerks for appellate judges, college and graduate admissions, and entry into medical specialties and subspecialties. Loosely speaking, these markets serve their participants best when they allow efficient matching, e.g. when the best applicants are matched to the best positions, and the results will have implications for how market performance in this respect can be improved.