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Dynamic Directed Random Matching

Author

Listed:
  • Duffie, Darrell

    (Stanford University)

  • Qiao, Lei

    (National University of Singapore)

  • Sun, Yeneng

    (National University of Singapore)

Abstract

We demonstrate the existence of a continuum of agents conducting directed random searches for counterparties, and characterize the implications. Our results provide the first probabilistic foundation for static and dynamic directed random search (including the matching function approach) that is commonly used in the search-based models of financial markets, monetary theory, and labor economics. The agents' types are shown to be independent discrete-time Markov processes that incorporate the effects of random mutation, random matching with match-induced type changes, and with the potential for enduring partnerships that may have randomly timed break-ups. The multi-period cross-sectional distribution of types is shown to be deterministic via the exact law of large numbers.

Suggested Citation

  • Duffie, Darrell & Qiao, Lei & Sun, Yeneng, 2015. "Dynamic Directed Random Matching," Research Papers 3359, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:3359
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