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Pre-match investment with frictions

  • Bidner, Chris

The paper explores an environment in which agents are motivated to make unproductive investments with the sole aim of improving their matching opportunities. In contrast to existing work, I add frictions by allowing the investment to be imperfectly observed. The analysis allows for a deeper understanding of the trade-off inherent in related models: investments waste resources but facilitates more efficient matching patterns. I show that greater frictions i) do not always lead to inferior matching patterns, and ii) can force the economy into to a Pareto preferred equilibrium.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 68 (2010)
Issue (Month): 1 (January)
Pages: 23-34

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Handle: RePEc:eee:gamebe:v:68:y:2010:i:1:p:23-34
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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