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Holding Options in Search and Matching

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  • Junghwan Seo

    (Yonsei University)

Abstract

This paper investigates the implications of adding a recall option in a dynamic model of search and matching. The effects of a holding option on market efficiency are examined by comparing the markets with and without a holding option. When preferences are homogeneous, a holding option tends to decrease market efficiency when the population is small, and to increase it when the population is large. When preferences are heterogeneous, a holding option tends to increase market efficiency when population is small, and to decrease it when the population is large. It is also shown that the existence of a holding option is an equilibrium. The results show the basic features of a reservation system. They also indicate that, in modeling a non-steady state search-and-match situation, the assumption of no recall can lead to the wrong conclusion about market efficiency.

Suggested Citation

  • Junghwan Seo, 1996. "Holding Options in Search and Matching," Korean Economic Review, Korean Economic Association, vol. 11(2), pages 23-43.
  • Handle: RePEc:kea:keappr:ker-199602-11-2-02
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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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