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Unraveling of Dynamic Sorting

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Author Info
Ettore Damiano
Hao Li

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Abstract

We consider a two-sided, finite-horizon model of search and matching with heterogeneous types and complementarity between types. The quality of the pool of potential matches deteriorates as agents who have found mutually agreeable matches exit the market. With automatic participation of all agents in each round, the market performs a sorting function in that attractive types of agents have multiple chances to meet and match with their peers. However, the sorting function of the market is lost if agents incur an arbitrarily small cost in order to participate in each round. The market unravels as almost all agents rush to participate in the first round and match and exit with anyone they meet.

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Publisher Info
Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 174.

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Date of creation: 2004
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Handle: RePEc:red:sed004:174

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Related research
Keywords: Random matching; Search externality; Endogenous participation; complementarity;

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Find related papers by JEL classification:
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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References listed on IDEAS
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. 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)
  4. 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)
    Other versions:
  5. 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)
  6. 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)
  7. Robert Shimer & Lones Smith, 2001. "Matching, Search, and Heterogeneity," Advances in Macroeconomics, Berkeley Electronic Press, vol. 1(advances/), pages 1010-1010. [Downloadable!] (restricted)
  8. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  9. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
    Other versions:
  10. 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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  11. 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.
  12. 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)
  13. 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)
  14. 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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  15. 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)
  16. 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)
  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. [Downloadable!] (restricted)
  18. Lones Smith, 1995. "Cross-Sectional Dynamics in a Two-Sided Matching Model," Working papers 95-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  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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Full references

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. Hanna W. Halaburda, 2008. "Unravelling in Two-Sided Matching Markets and Similarity of Preferences," Harvard Business School Working Papers 09-068, Harvard Business School. [Downloadable!]
  2. 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:
  3. Aloysius Siow, 2009. "Testing Becker's Theory of Positive Assortative Matching," Working Papers tecipa-356, University of Toronto, Department of Economics. [Downloadable!]
  4. Frederick Chen, 2003. "Unraveling in a dynamic matching market with Nash bargaining," Economics Bulletin, Economics Bulletin, vol. 3(17), pages 1-6. [Downloadable!]
  5. Jens Josephson & Joel Shapiro, 2008. "Interviews and Adverse Selection," Economics Working Papers 1093, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  6. Hao Li, 2003. "Price Discrimination in Matching Markets," Theory workshop papers 505798000000000028, UCLA Department of Economics. [Downloadable!]
  7. Damiano, Ettore & Li, Hao, 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!]
    Other versions:
  8. Muriel Niederle & Alvin E. Roth & M. Utku Ãœnver, 2009. "Unraveling Results from Comparable Demand and Supply: An Experimental Investigation," NBER Working Papers 15006, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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