Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium

This paper examines the role of commitment and advertising in the labor market for the determination of the levels of wages, human capital and physical capital. In a competitive search framework it is shown that when the characteristics of jobs or workers become common knowledge (so that the other side of the market can use those characteristics as a basis for search) the efficient outcome pertains. Which side of the market advertises a particular characteristic (or a requirement for that characteristic) does not matter for the outcomes. When there is no wage commitment but investments are common knowledge the Hosios condition is shown to bring about efficiency on every margin.