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Assortative matching through signals

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  • Friedrich Poeschel

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Brasenose College - University of Oxford)

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    Abstract

    We model signalling in two-sided sequential search with heterogeneous agents and transferable utility. Search via meetings is time-consuming and thereby costly due to discounting. Search via signals is costless, so that agents can avoid almost all search costs if only the signals are truthful. We show that signals will indeed be truthful if the match output function is su ciently super- modular. The unique separating equilibrium is then characterised by perfect positive assortative matching despite the search frictions. In this equilibrium, agents successfully conclude their search after a single meeting, and overall match output is maximised. These results continue to hold when there are also explicit search costs in addition to discounting.

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    Bibliographic Info

    Paper provided by HAL in its series Working Papers with number halshs-00585986.

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    Date of creation: Nov 2008
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    Handle: RePEc:hal:wpaper:halshs-00585986

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    Related research

    Keywords: assortative matching ; supermodularity ; signals;

    References

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    1. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2006. "The Theory of Assortative Matching Based on Costly Signals," CEPR Discussion Papers 5543, C.E.P.R. Discussion Papers.
    2. Shimer, R. & Smith, L., 1997. "Assortative Matching and Search," Working papers 97-2a, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Ed Hopkins, 2012. "Job Market Signaling Of Relative Position, Or Becker Married To Spence," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 10(2), pages 290-322, 04.
    4. Jan Eeckhout & Philipp Kircher, 2008. "Sorting and Decentralized Price Competition," PIER Working Paper Archive 08-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    5. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
    6. Peters, Michael, 1991. "Ex Ante Price Offers in Matching Games Non-steady States," Econometrica, Econometric Society, Econometric Society, vol. 59(5), pages 1425-54, September.
    7. Adachi, Hiroyuki, 2003. "A search model of two-sided matching under nontransferable utility," Journal of Economic Theory, Elsevier, vol. 113(2), pages 182-198, December.
    8. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(2), pages 385-411, April.
    9. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
    10. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(456), pages F307-34, June.
    11. Alp Atakan, 2005. "Assortative Matching with Explicit Search Costs," 2005 Meeting Papers 218, Society for Economic Dynamics.
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