Abstract
How would a policy that bans the use of networks in hiring (e.g. anti-old boy network laws) affect welfare? We answer this question in a random search model in which there are two hiring methods, formal costly channels and referral channels, and there are two types of workers, networked workers, who can be hired through both channels, and non-networked workers, who cannot be hired through referrals. We show that the effect of a referral-restricting policy on non-networked workers can be either positive or negative, depending on model parameters. In our calibration such a policy would make non-networked workers slightly worse off and networked workers substantially worse off.
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