Tasks and Types: An Application of Mechanism Design to Self‐Selection in Labour Markets

The Baron–Myerson (1982) regulatory mechanism is applied to the screening activity of a monopolist, who hires workers differentiated by quality and assigns them to different tasks. The employer charges a price to the workers for the screening service: necessary and sufficient conditions are provided for a self‐selective price function to exist. It is shown that under the optimal price function tasks are assigned in such a way that workers' effort is increasing in workers' quality. It is not necessarily true, however, that the price function must be increasing in workers' quality. A simple two‐types model is provided, showing the same results. Also the extension of the model to a dynamic context and, particularly, the requirements of a credible pre‐commitment available to the screener are discussed.