Self-Fulfilling early-contracting rush

Abstract

In markets for entry-level professionals, the insurance motive drives some participants to sign early contracts. The rush to early contracting can be self-fulfilling, as both its effect on expectations about demand–supply balance in the subsequent spot market and the effect on it from changes in the demand–supply balance can be nonmonotone. Matching markets with more risk-averse participants, a greater uncertainty regarding relative supply of positions, or a more polarized distribution of applicant qualities are more vulnerable to self-fulfilling early-contracting rushes. Employers can have a collective interest in preventing early offers to a few promising applicants from starting the rushes.