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Search theory, competitive equilibrium, and the Nash bargaining solution

  • Cho, In-Koo
  • Matsui, Akihiko
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    We investigate a canonical search-theoretic model without entry. Two agents are randomly matched with a long side being rationed. The matched agents face a pair of randomly drawn non-transferable payoffs, and then choose whether or not to form a partnership subject to a small probability of exogenous break down. As this probability and friction vanish, the Nash bargaining solution emerges as the unique undominated strategy equilibrium outcome if the mass of each party is the same. If the size of one party is larger than the other, the short side extracts the entire surplus, a sharp contrast to Rubinstein and Wolinsky (1985) [16].

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    File URL: http://www.sciencedirect.com/science/article/pii/S0022053113000690
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    Article provided by Elsevier in its journal Journal of Economic Theory.

    Volume (Year): 148 (2013)
    Issue (Month): 4 ()
    Pages: 1659-1688

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    Handle: RePEc:eee:jetheo:v:148:y:2013:i:4:p:1659-1688
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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    1. Max Planck Institute & Stephan Lauermann, 2007. "Dynamic Matching and Bargaining Games: A General Approach," 2007 Meeting Papers 269, Society for Economic Dynamics.
    2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    3. Gilboa, Itzhak & Matsui, Akihiko, 1992. "A model of random matching," Journal of Mathematical Economics, Elsevier, vol. 21(2), pages 185-197.
    4. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
    5. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
    6. Takako Fujiwara-Greve & Masahiro Okuno-Fujiwara, 2008. "Voluntarily Separable Repeated Prisoner's Dilemma," CIRJE F-Series CIRJE-F-599, CIRJE, Faculty of Economics, University of Tokyo.
    7. Parikshit Ghosh & Debraj Ray, 1995. "Cooperation in Community Interaction Without Information Flows," Boston University - Institute for Economic Development 64, Boston University, Institute for Economic Development.
    8. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
    9. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
    10. Ken Burdett & Randall Wright, 1998. "Two-Sided Search with Nontransferable Utility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 220-245, January.
    11. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    12. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
    13. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-54, August.
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