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Stochastic sorting

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  • Chade, Hector
  • Eeckhout, Jan

Abstract

In many economic settings, matching takes place under imperfect information about agents’ characteristics that are payoff-relevant to the match. This paper develops a matching model in which agents’ payoff-relevant characteristics are realized after matching takes place, and matching is based on the agents’ observable ex-ante characteristics, which stochastically determine the payoff-relevant ones. We derive conditions for positive and negative sorting. The conditions differ depending on whether agents’ characteristics are stochastically larger or more variable as a function of the agents’ ex-ante attributes. We apply our framework to risk sharing and household income inequality.

Suggested Citation

  • Chade, Hector & Eeckhout, Jan, 2026. "Stochastic sorting," Journal of Economic Theory, Elsevier, vol. 233(C).
    • Handle: RePEc:eee:jetheo:v:233:y:2026:i:c:s0022053126000104
    DOI: 10.1016/j.jet.2026.106146
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