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Premuneration Values and Investments in Matching Markets

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  • George Mailath

    ()
    (Department of Economics, University of Pennsylvania)

  • Andrew Postlewaite

    ()
    (Department of Economics, University of Pennsylvania)

  • Larry Samuelson

    ()
    (Department of Economics, Yale University)

Abstract

We examine markets in which agents make investments and then match into pairs, creating surpluses that depend on their investments and that can be split between the matched agents. In general, each of the matched agents would ”own" part of the surplus in the absence of interagent transfers. Most of the work in the large bargaining-and matching literature ignores this initial ownership of the surplus. We show that when investments are not observable to potential partners, initial ownership affects the efficiency of equilibrium investments and affects the agents' payoffs. In particular, it is possible that reallocating initial ownership could increase welfare on both sides of the match.

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Bibliographic Info

Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 12-008.

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Length: 38 pages
Date of creation: 12 Mar 2012
Date of revision:
Handle: RePEc:pen:papers:12-008

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Keywords: Directed search; matching; premuneration value; prematch investments; search;

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  1. Masters, Adrian, 2011. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(7), pages 1017-1031, July.
  2. Heidrun C. Hoppe & Benny Moldovanu & Aner Sela, 2009. "The Theory of Assortative Matching Based on Costly Signals," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 253-281.
  3. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum, Oslo University, Department of Economics 37/1995, Oslo University, Department of Economics.
  4. Jeremy Bulow & Jonathan Levin, 2006. "Matching and Price Competition," American Economic Review, American Economic Association, American Economic Association, vol. 96(3), pages 652-668, June.
  5. Ed Hopkins, 2006. "Job Market Signalling of Relative Position, or Becker Married to Spence," Levine's Bibliography 321307000000000553, UCLA Department of Economics.
  6. Thomas Gall & Patrick Legros & Andrew Newman, 2006. "The timing of education," ULB Institutional Repository, ULB -- Universite Libre de Bruxelles 2013/7026, ULB -- Universite Libre de Bruxelles.
  7. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 66(2), pages 233-242, May.
  8. repec:bla:restud:v:76:y:2009:i:1:p:253-281 is not listed on IDEAS
  9. Patrick Legros & Andrew F. Newman, 2002. "Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series, Boston University - Department of Economics dp-149, Boston University - Department of Economics, revised Nov 2004.
  10. Mailath, George J. & Samuelson, Larry & Postlewaite, Andrew, 2013. "Pricing and investments in matching markets," Theoretical Economics, Econometric Society, Econometric Society, vol. 8(2), May.
  11. Ostrovsky, Michael & Schwarz, Michael, 2007. "Information Disclosure and Unraveling in Matching Markets," Research Papers, Stanford University, Graduate School of Business 1965, Stanford University, Graduate School of Business.
  12. Jan Eeckhout & Philipp Kircher, 2008. "Sorting and Decentralized Price Competition," PIER Working Paper Archive, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania 08-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  13. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, Elsevier, vol. 98(2), pages 232-260, June.
  14. Michael Peters & Aloysius Siow, 2002. "Competing Premarital Investments," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(3), pages 592-608, June.
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