Assortative matching through signals

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Assortative matching through signals

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Friedrich Poeschel

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Friedrich Poeschel

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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Paper provided by PSE (Ecole normale supérieure) in its series PSE Working Papers with number 2008-71.

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Date of creation: 2008
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Handle: RePEc:pse:psecon:2008-71

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This paper has been announced in the following NEP Reports:

NEP-ALL-2009-01-17 (All new papers)
NEP-CTA-2009-01-17 (Contract Theory & Applications)
NEP-DGE-2009-01-17 (Dynamic General Equilibrium)
NEP-LAB-2009-01-17 (Labour Economics)

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Other versions:
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