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A Dynamic Model of Search and Intermediation

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Author Info

  • Gautam Bose

    ()
    (School of Economics, The University of New South Wales)

  • Abhijit Sengupta

    ()
    (Discipline of Economics, University of Sydney)

Abstract

This paper develops a dynamic model of an economy with search frictions in which homogeneous agents choose between specializing as producers or as merchants, and can change occupation at any time. Merchants operate alongside a decentralized search market and provide immediacy in trade in return for a price. Agents who know the location of a merchant have the option of paying the merchant’s price and avoiding search. We characterize equilibria in symmetric Markov strategies, and derive conditions under which merchants and their clients form a repeated relationship. We analyze welfare and explore conditions for the endogenous rise of an institution of intermediation.

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File URL: http://research.economics.unsw.edu.au/RePEc/papers/2010-04.pdf
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Bibliographic Info

Paper provided by School of Economics, The University of New South Wales in its series Discussion Papers with number 2010-04.

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Length: 35 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:swe:wpaper:2010-04

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Related research

Keywords: Search; endogenous intermediation; repeated interaction;

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Cited by:
  1. Yuet-Yee Wong & Randall Wright, 2011. "Buyers, sellers and middlemen: variations in search theory," Working Papers 691, Federal Reserve Bank of Minneapolis.
  2. Yuet-Yee Wong & Randall Wright, 2011. "Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes," 2011 Meeting Papers 374, Society for Economic Dynamics.
  3. Yuet-Yee Wong & Randall Wright, 2011. "Buyers, Sellers and Middlemen: Variations on Search-Theoretic Themes," NBER Working Papers 17511, National Bureau of Economic Research, Inc.

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