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Unravelling of Dynamic Sorting

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Author Info
Ettore Damiano

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Abstract

We consider a two-sided, finite-horizon search and matching model with heterogeneous types and complementarity between types. The quality of the pool of potential partners deteriorates as agents who have found mutually agreeable matches exit the market. When search is costless and all agents participate in each matching round, the market performs a sorting function in that high types of agents have multiple chances to match with their peers. However, this sorting function is lost if agents incur an arbitrarily small cost in order to participate in each round. With a sufficiently rich type space, the market unravels as almost all agents rush to participate in the first round and match and exit with anyone they meet. Copyright The Review of Economic Studies Limited, 2005.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/0034-6527.00361
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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 72 (2005)
Issue (Month): 4 (October)
Pages: 1057-1076
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Handle: RePEc:bla:restud:v:72:y:2005:i:4:p:1057-1076

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Li, Hao & Rosen, Sherwin, 1998. "Unraveling in Matching Markets," American Economic Review, American Economic Association, vol. 88(3), pages 371-87, June. [Downloadable!] (restricted)
  2. Roth, Alvin E & Xing, Xiaolin, 1997. "Turnaround Time and Bottlenecks in Market Clearing: Decentralized Matching in the Market for Clinical Psychologists," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 284-329, April.
  3. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
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  4. Robert Shimer, 2001. "The Assignment of Workers to Jobs In an Economy with Coordination Frictions," NBER Working Papers 8501, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Ricardo Lagos, 2000. "An Alternative Approach to Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 851-873, October. [Downloadable!] (restricted)
  6. Wing Suen, 2000. "A Competitive Theory of Equilibrium and Disequilibrium Unravelling in Two-Sided Matching," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 101-120, Spring.
  7. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October. [Downloadable!] (restricted)
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  8. Hao Li & Wing Suen, 2000. "Risk Sharing, Sorting, and Early Contracting," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1058-1087, October. [Downloadable!] (restricted)
  9. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February. [Downloadable!] (restricted)
  10. Matthew O. Jackson & Thomas R. Palfrey, 1998. "Efficiency and Voluntary Implementation in Markets with Repeated Pairwise Bargaining," Econometrica, Econometric Society, vol. 66(6), pages 1353-1388, November.
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  11. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December. [Downloadable!] (restricted)
  12. Hosios, Arthur J, 1990. "On the Efficiency of Matching and Related Models of Search and Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 57(2), pages 279-98, April. [Downloadable!] (restricted)
  13. Hao Li & Wing Suen, 2004. "Self-Fulfilling Early-Contracting Rush," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 301-324, 02. [Downloadable!] (restricted)
  14. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September. [Downloadable!] (restricted)
  15. Robert Shimer & Lones Smith, 2001. "Matching, Search, and Heterogeneity," Advances in Macroeconomics, Berkeley Electronic Press, vol. 1(advances/), pages 1010-1010. [Downloadable!] (restricted)
  16. Roth, Alvin E, 1984. "The Evolution of the Labor Market for Medical Interns and Residents: A Case Study in Game Theory," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 991-1016, December. [Downloadable!] (restricted)
  17. Lones Smith, 1995. "Cross-Sectional Dynamics in a Two-Sided Matching Model," Working papers 95-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  18. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  19. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, vol. 80(2), pages 350-369, June. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Frederick Chen, 2003. "Unraveling in a dynamic matching market with Nash bargaining," Economics Bulletin, Economics Bulletin, vol. 3(17), pages 1-6. [Downloadable!]
  2. Jens Josephson & Joel Shapiro, 2008. "Interviews and Adverse Selection," Economics Working Papers 1093, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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  3. Alvin Roth, 2008. "Deferred acceptance algorithms: history, theory, practice, and open questions," International Journal of Game Theory, Springer, vol. 36(3), pages 537-569, March. [Downloadable!] (restricted)
    Other versions:
  4. Hao Li, 2003. "Price Discrimination in Matching Markets," Theory workshop papers 505798000000000028, UCLA Department of Economics. [Downloadable!]
  5. Li, Hao & Damiano, Ettore, 2005. "Price Discrimination and Efficient Matching," Micro Theory Working Papers damiano-05-03-21-12-21-58, Microeconomics.ca Website, revised 22 Mar 2005. [Downloadable!]
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