Costly interviews

In this paper, we show how the interaction between costly screening and competition in decentralized markets may prevent efficient matching. We examine this phenomenon in a simple dynamic model of a professional labor market, where firms can pay a cost to interview applicants who have private information about their own ability. Inefficiencies arise when a firm decides not to interview potentially able candidates since it infers that sufficiently good candidates will be hired by more productive firms. This effect is robust to changes in the information structure of the market, but it can be mitigated by subsidizing screening costs.