Unraveling Results from Comparable Demand and Supply:An Experimental Investigation

Markets sometimes unravel, with offers becoming inefficiently early. Often this is attributedto competition arising from an imbalance of demand and supply, typically excess demand forworkers. However this presents a puzzle, since unraveling can only occur when firms are willingto make early offers and workers are willing to accept them. We present a model and experimentin which workers’ quality becomes known only in the late part of the market. However, inequilibrium, matching can occur (inefficiently) early only when there is comparable demandand supply: a surplus of applicants, but a shortage of high quality applicants....