AbstractWe study a dynamic bilateral matching model with private information about agents' characteristics. These characteristics affect the quality of a match and, as a result, the payoffs of both matching partners. Assortative matching maximizes total welfare. The outcome of the matching process can be improved if a payoff-irrelevant (sunspot) variable which we term ``fashion'' is introduced. Agents that are informed of the realization of the sunspot variable, modelled as a number (or ''color'') in the interval [0,1], choose to adopt it as a label that identifies them to other informed agents. If only productive agents are informed of the trend, assortative matching results. If success in matching is observed, other, less productive, agents learn to imitate the productive ones. Therefore, we show that for fashion to be useful, it needs to constantly change. If fashion is costly to acquire, we demonstrate the existence of a ``separating equilibrium'' in which only the productive agents acquire the ever changing fashion in every period. This equilibrium matching rule achieves assortative matching and maximizes total welfare
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 89.
Date of creation: 2004
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
assortative matching; sunspots;
Other versions of this item:
- D - Microeconomics
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.