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Dynamic directed random matching

Author

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  • Duffie, Darrell
  • Qiao, Lei
  • Sun, Yeneng

Abstract

We develop a general and unified model in which a continuum of agents conduct directed random searches for counterparties. Our results provide the first probabilistic foundation for static and dynamic models of directed search (including the matching-function approach) that are common in search-based models of financial markets, monetary theory, and labor economics. The agents' types are shown to be independent discrete-time Markov processes that incorporate the effects of random mutation, random matching with match-induced type changes, and with the potential for enduring partnerships that may have randomly timed break-ups. The multi-period cross-sectional distribution of types is shown to be deterministic and is calculated using the exact law of large numbers.

Suggested Citation

  • Duffie, Darrell & Qiao, Lei & Sun, Yeneng, 2018. "Dynamic directed random matching," Journal of Economic Theory, Elsevier, vol. 174(C), pages 124-183.
  • Handle: RePEc:eee:jetheo:v:174:y:2018:i:c:p:124-183
    DOI: 10.1016/j.jet.2017.11.011
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    More about this item

    Keywords

    Independent dynamic random matching; Directed search; Enduring partnerships; Exact law of large numbers; Population dynamics; Random mutation;

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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