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Investment and Competitive Matching

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We study markets in which agents first make investments and are then matched into potentially productive partnerships. Equilibrium investments and the equilibrium matching will be efficient if agents can simultaneously negotiate investments and matches, but we focus on markets in which agents must first sink their investments before matching. Additional equilibria may arise in this sunk-investment setting, even though our matching market is competitive. These equilibria exhibit inefficiencies that we can interpret as coordination failures. All allocations satisfying a constrained efficiency property are equilibria, and the converse holds if preferences satisfy a separability condition. We identify sufficient conditions (most notably, quasiconcave utilities) for the investments of matched agents to satisfy an exchange efficiency property as well as sufficient conditions (most notably, a single crossing property) for agents to be matched positive assortatively, with these conditions then forming the core of sufficient conditions for the efficiency of equilibrium allocations.

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  • Georg Noldeke & Larry Samuelson, 2014. "Investment and Competitive Matching," Cowles Foundation Discussion Papers 1946, Cowles Foundation for Research in Economics, Yale University, revised Nov 2014.
    • Handle: RePEc:cwl:cwldpp:1946
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    Cited by:

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    3. Hans Gersbach & Hans Haller & Hideo Konishi, 2015. "Household formation and markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 59(3), pages 461-507, August.
    4. Rasmus Lentz & Nicolas Roys, 2024. "Training and Search On the Job," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 53, pages 123-146, July.
    5. Tomoeda, Kentaro, 2019. "Efficient investments in the implementation problem," Journal of Economic Theory, Elsevier, vol. 182(C), pages 247-278.
    6. Boyan Jovanovic & Zhu Wang, 2020. "Idea Diffusion and Property Rights," Working Paper 20-11, Federal Reserve Bank of Richmond.
    7. Tommaso Porzio, 2016. "Distance to the Technology Frontier and the Allocation of Talent," 2016 Meeting Papers 569, Society for Economic Dynamics.

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    More about this item

    Keywords

    Matching; Investment; Coordination failure; Positive assortative matching; Efficiency;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium

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