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Unravelling of Dynamic Sorting

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  • Ettore Damiano
  • Hao Li
  • Wing Suen

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 2005, Wiley-Blackwell.

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File URL: http://hdl.handle.net/10.1111/0034-6527.00361
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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 72 (2005)
Issue (Month): 4 ()
Pages: 1057-1076

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Handle: RePEc:oup:restud:v:72:y:2005:i:4:p:1057-1076

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  1. 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.
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  14. 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.
  15. Shimer Robert & Smith Lones, 2001. "Matching, Search, and Heterogeneity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 1(1), pages 1-18, April.
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  17. 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.
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  19. 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.
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