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Heterogeneous Discount Factors in an Assignment Model with Search Frictions

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    Abstract

    We look at a simple market with two-sided heterogeneity and pairwise meetings. On the supply side are two landlord types who differ in the quality of their apartments. On the demand side is a continuum of tentant types who differ in their valuations for apartment types and their patience. For infinitesimal search frictions and an atomless tanant type distribution, we full ycharacterize all possible steady stage equilibria in a typical region of the parameter space. Our main finding is that the heterogeneous discount factors can cause strong deviations from the Walrasian outcome even when we asymptotically remove all the search frictions. All conventional frictional models with non-Walrasian limits are qualitatively different from the model in this paper.

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    File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie9807.pdf
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    Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 9807.

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    Date of creation: Jun 1999
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    Handle: RePEc:vie:viennp:9807

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    Web page: http://www.univie.ac.at/vwl

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    1. Harrington, Joseph E, Jr, 1998. "The Social Selection of Flexible and Rigid Agents," American Economic Review, American Economic Association, vol. 88(1), pages 63-82, March.
    2. Edward J. Green, 1994. "Individual Level Randomness in a Nonatomic Population," GE, Growth, Math methods 9402001, EconWPA.
    3. Matsui Akihiko & Matsuyama Kiminori, 1995. "An Approach to Equilibrium Selection," Journal of Economic Theory, Elsevier, vol. 65(2), pages 415-434, April.
    4. Rui Pascoa, Mario, 1993. "Approximate equilibrium in pure strategies for non-atomic games," Journal of Mathematical Economics, Elsevier, vol. 22(3), pages 223-241.
    5. Alos-Ferrer, C., 1998. "Dynamic Systems with a Continuum of Randomly Matched Agents," Papers 9801, Washington St. Louis - School of Business and Political Economy.
    6. Nabil I. Al-Najjar & Ramon Casadesus-Masanell & Emre Ozdenoren, 1999. "Subjective Representation of Complexity," Discussion Papers 1249, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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