Dual Coordination Frictions in Application-Based Matching
Expert TheoryReview
Standard aggregate Cobb-Douglas matching functions assume constant returns and smooth matching efficiency, ignoring how increasing individual application volume creates discrete coordination bottlenecks on both the applicant and employer sides.
Picture this
Think of job hunting like sending college applications. The first friction happens when many students apply to the exact same university, leaving smaller colleges with zero applicants. The second friction happens when a university offers admission to top applicants, but those applicants choose other universities instead, leaving the original university with unfilled seats and no time to process waitlisted students.
What the evidence says
While higher search effort per worker resolves the first friction (reducing empty vacancies), it exacerbates the second friction (increasing double-job offers and candidate loss), causing aggregate matching efficiency to flatten and diminish beyond optimal application thresholds.
- Who was studied
- Theoretical matching framework calibrated using Indirect Inference on N = 40,403 Danish job seekers across 14 county labor markets.
- How
- Micro-founded directed search matching function $m(a; \bar{a}, \theta) = 1 - (1 - \psi)^a$ with Poisson-distributed vacancy applications ($\psi = \frac{\theta}{\bar{a}}(1 - e^{-\bar{a}/\theta})$).
What to do
Specify matching functions with explicit dual-coordination friction parameters to model non-linear matching returns under policy-induced search effort spikes.
From the source
"There are two coordination frictions affecting job finding: (i) workers do not know where other workers apply, and (ii) firms do not know which candidates are considered by other firms... More applications per worker reduce the first coordination problem mentioned above but amplify the second one."
816b5187-9076-4043-aba7-184043b2e524-Estimating Equilibrium Effects of Job Search Assistance.pdf