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Search theory, competitive equilibrium, and the Nash bargaining solution

  • Cho, In-Koo
  • Matsui, Akihiko

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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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. 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.
  2. Douglas Gale, 2010. "Limit theorems for markets with sequential bargaining," Levine's Working Paper Archive 621, David K. Levine.
  3. Itzhak Gilboa & Akihiko Matsui, 1990. "A Model of Random Matching," Discussion Papers 887, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. 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.
  5. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  6. Parikshit Ghosh & Debraj Ray, 1996. "Cooperation in Community Interaction Without Information Flows," Review of Economic Studies, Oxford University Press, vol. 63(3), pages 491-519.
  7. Arial Rubinstein & Asher Wolinsky, 1985. "Equilibrium in a Market with Sequential Bargaining," Levine's Working Paper Archive 623, David K. Levine.
  8. 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.
  9. Max Planck Institute & Stephan Lauermann, 2007. "Dynamic Matching and Bargaining Games: A General Approach," 2007 Meeting Papers 269, Society for Economic Dynamics.
  10. 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.
  11. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  12. repec:oup:restud:v:61:y:1994:i:3:p:397-415 is not listed on IDEAS
  13. repec:oup:restud:v:63:y:1996:i:3:p:491-519 is not listed on IDEAS
  14. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
  15. Dale T. Mortensen & Christopher A. Pissarides, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 397-415.
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