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Dynamic Directed Random Matching

Listed author(s):
  • Darrell Duffie
  • Lei Qiao
  • Yeneng Sun

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 21731.

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Date of creation: Nov 2015
Handle: RePEc:nbr:nberwo:21731
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