A Strategic Selection Procedure

A decision maker (DM) wishes to select a competent candidate to …ll a position.However, since the wage and task of the position is predetermined, the DM cannot usecontract as a screening device. This paper formulates the problem as a class of selectionproblem and derives the optimal selection procedure. The key element of our selectionprocedure is voluntary testing. That is, unlike statistical selection procedures, thesignal generating process is endogenous. Then, the optimal selection rule takes intoaccount not only the test performances but also signaling element of the test. Weanalyze the selection procedure as a signaling game and derive the optimal selectionrule. Moreover, the optimal size of candidate pool and the selection e¢ ciency are alsoanalyzed. It is shown that, by making the test voluntary, the selection e¢ ciency canbe dramatically improved.