We consider a directed search model in which workers differ in productivity. Productivity becomes observable to firms after assessing their workers on the job, but it is not verifiable. Firms with vacancies choose between posting a noncontingent wage and leaving wages subject to bargaining with...

Social contacts help workers to find jobs, but those jobs need not be in the occupations where workers are most productive. Hence social contacts can generate mismatch between a worker's occupational choice and his comparative productive advantage. Thus economies with dense social networks can...

We claim that the stock market encourages business creation, innovation, and growth by allowing the recycling of "informed capital". Due to incentive and information problems, start-ups face larger costs of going public than mature firms. Sustaining a tight relationship with a monitor (bank,...