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A person engaged in search may be uncertain whether the good or job he seeks is still available. Some people may therefore search when the job or good is unavailable; others may stop searching too early. A seller or employer who wants individuals to search should therefore periodically announce that the position or good is still available. The profit-maximizing strategy, however, differs from the socially-optimal one. Online advertising, which allows immediate updating of information by the seller or employer, also alleviates the problem of excessive search. But the seller may have insufficient incentive to adopt online announcements.

A person is often uncertain whether the object of his search is still available. For example, a consumer may be unaware whether a house he had seen a week ago was sold; a renter may be unsure whether an apartment is still vacant; a person reading a classified advertisement for a car may believe it has already been sold; a person seeking employment may fear that by the time he applies for a job it has already been filled. For concreteness we shall speak of the last example, a job search. The problem has been recognized in practice. Cawley (2006) writes that “The American Economic Association Ad Hoc Committee on the Job Market was concerned that candidates occasionally go unhired and job positions unfilled because they do not match during the primary job market. Once the primary market clears, it is difficult for unmatched agents to determine who remains unmatched on the other side of the market. Furthermore, while labor demanders can post another advertisement in Job Openings for Economists, it is difficult for labor suppliers to signal their continuing availability.” Our paper explores behavior when searchers are imperfectly informed. We avoid assuming that applicants continue arriving until the job is filled, or the good is sold, stopping immediately once it is. Instead, we allow a person to apply for a job after it is filled, and we allow some potential job-seekers to refrain from incurring the cost of applying for a job in the belief that it has already been filled. For example, a person may believe that a vacancy announced 6 months ago is almost certainly filled, so that applying for it now would be wasteful. Hence, an employer cannot merely choose from a stream of applicants; he must also ensure that applicants appear. The employer must therefore periodically re-announce the vacancy. The announcement is observed by all potential applicants, so we need not worry about different persons having different information. Put differently, we explore the participation constraint in a model of search.

People with imperfect information may apply for a job that is filled, or search for a good that is already sold. When a person’s cost of search is borne by him rather than compensated by the employer, people will stop applying after a fixed time following the last announcement of the opening. The profit-maximizing strategy must consider how hiring standards affect the behavior of job-seekers and the need to repeatedly advertise a vacancy. But because the firm does not internalize the search costs of infra-marginal job-seekers, excessive search is induced. Institutions may arise to make consumers or job applicants better informed about the current state of the market. Persons searching for a house may use a real estate agent with access to data on which houses previously advertised for sale are still on the market. Retailers may offer rain checks to induce persons who would otherwise fear a stockout to come to the store. Firms may announce job openings on web sites which are updated the instant a job is filled. But even then information may be imperfect. Is the job filled once a firm offers it? Once a person accepts it? Once a person actually starts working at the firm? With uncertainty about the information a firm provides, a potential job-seeker may continue to believe that the longer the time since the firm announced a vacancy, the less likely is the position still available. The analysis given here can then apply even under new information technologies. In terms of policy, we see three applications. First, profit- maximizing firms may advertise too little, suggesting welfare losses if advertisements are taxed, and justifying subsidization. Second, since online advertising with continuous updating of announcements overcomes the problems of classified advertising, we offer some justification for favorable treatment of the Internet. Lastly, since government itself is a large employer, it might improve welfare by lowering its hiring standards or by announcing when positions are filled.