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Search, Heterogeneity, and Noisy Observable Types

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This paper analyzes a model with search frictions, heterogeneous agents, and nontransferable utility, in which each individual observes only a noisy signal of the type of a potential partner. We show that an agent's optimal strategy must take into account not only the realization of the noisy signal observed, but also the information contained in the event that the agent is accepted. We show that there exists an equilibrium in strategies that are increasing in types; the proof is based on the analysis of a Bayesian game embedded in the model. This equilibrium exhibits a stochastic form of positive sorting of agents by types: since agents with higher types are accepted more often, and being accepted is 'better news' for them than for agents with lower types, they tend to be more selective in their acceptance decision, and, therefore, they tend to marry agents with higher types. We also shed light on whether equilibria in strategies that are not increasing in types could exist.

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  • Hector Chade, "undated". "Search, Heterogeneity, and Noisy Observable Types," Working Papers 2133485, Department of Economics, W. P. Carey School of Business, Arizona State University.
  • Handle: RePEc:asu:wpaper:2133485
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    References listed on IDEAS

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    1. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, pages 343-370.
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    3. Eeckhout, Jan, 1999. "Bilateral Search and Vertical Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 869-887, November.
    4. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
    5. 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.
    6. An, Mark Yuying, 1998. "Logconcavity versus Logconvexity: A Complete Characterization," Journal of Economic Theory, Elsevier, pages 350-369.
    7. Chade, Hector, 2001. "Two-sided search and perfect segregation with fixed search costs," Mathematical Social Sciences, Elsevier, vol. 42(1), pages 31-51, July.
    8. Sjoquist, David L. & Walker, Mary Beth, 1995. "The Marriage Tax and the Rate and Timing of Marriage," National Tax Journal, National Tax Association, vol. 48(4), pages 547-558, December.
    9. Ken Burdett & Melvyn G. Coles, 1997. "Marriage and Class," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 141-168.
    10. Alm, James & Whittington, Leslie A., 1995. "Does the Income Tax Affect Marital Decisions?," National Tax Journal, National Tax Association, vol. 48(4), pages 565-572, December.
    11. Bloch, Francis & Ryder, Harl, 2000. "Two-Sided Search, Marriages, and Matchmakers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 93-115, February.
    12. Burdett, Kenneth & Coles, Melvyn G, 1999. "Long-Term Partnership Formation: Marriage and Employment," Economic Journal, Royal Economic Society, vol. 109(456), pages 307-334, June.
    13. Alm, James & Whittington, Leslie A., 1995. "Does the Income Tax Affect Marital Decisions?," National Tax Journal, National Tax Association, vol. 48(4), pages 565-72, December.
    14. Sjoquist, David L. & Walker, Mary Beth, 1995. "The Marriage Tax and the Rate and Timing of Marriage," National Tax Journal, National Tax Association, vol. 48(4), pages 547-58, December.
    15. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-846, July-Aug..
    16. Hector Chade, "undated". "Search, Heterogeneity, and Noisy Observable Types," Working Papers 2133485, Department of Economics, W. P. Carey School of Business, Arizona State University.
    17. Chade, Hector, 2006. "Matching with noise and the acceptance curse," Journal of Economic Theory, Elsevier, vol. 129(1), pages 81-113, July.
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    Cited by:

    1. Hector Chade & Gustavo Ventura, 2005. "Income Taxation and Marital Decisions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 565-599, Juky.
    2. Padma Rao Sahib & Xinhua Gu, 2002. "To Tie the Knot or Not," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 6(13), pages 355-382, May.

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