Dynamic Assessments, Matching and Allocation of Tasks

In many two-sided markets, each side has incomplete information about the other but has an opportunity to learn (some) relevant information before final matches are made. For instance, clients seeking workers to perform tasks often conduct interviews that require the workers to perform some tasks and thereby provide information to both sides. The performance of a worker in such an interview/assessment - and hence the information revealed - depends both on the inherent characteristics of the worker and the task and also on the actions taken by the worker (e.g. the effort expended); thus there is both adverse selection (on both sides) and moral hazard (on one side). When interactions are ongoing, incentives for workers to expend effort in the current assessment can be provided by the payment rule used and also by the matching rule that assesses and determines the tasks to which the worker is assigned in the future; thus workers have career concerns. We derive mechanisms - payment, assessment and matching rules - that lead to final matchings that are stable in the long run and achieve close to the optimal performance (profit or social welfare maximizing) in equilibrium (unique) thus mitigating both adverse selection and moral hazard (in many settings).