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Performance and Turnover in a Stochastic Partnership

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  • David McAdams

Abstract

This paper characterizes the social-welfare maximizing equilibrium of a stochastic partnership matching market", in which players paired to play a stochastic game may quit to be costlessly and anonymously re-matched. Patterns of performance and turnover in this equilibrium are consistent with the well-known \survivorship bias" and, if partners form \meaningful rst impressions", with the \honeymoon e ect". By contrast, maximizing social welfare in standard repeated games with re-matching typically requires that players receive low payo s at the start of each relationship. Welfare and turnover comparative statics are also provided: higher partnership-states are associated with higher joint payo s and, in the special case of an exogenous stochastic process, with both higher joint stage-game and joint continuation payo s as well as longer-lasting relationships.

Suggested Citation

  • David McAdams, 2010. "Performance and Turnover in a Stochastic Partnership," Working Papers 10-61, Duke University, Department of Economics.
  • Handle: RePEc:duk:dukeec:10-61
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