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Premuneration Values and Investments in Matching Markets

  • George Mailath

    ()

    (Department of Economics, University of Pennsylvania)

  • Andrew Postlewaite

    ()

    (Department of Economics, University of Pennsylvania)

  • Larry Samuelson

    ()

    (Department of Economics, Yale University)

We examine markets in which agents make investments and then match into pairs, creating surpluses that depend on their investments and that can be split between the matched agents. In general, each of the matched agents would ”own" part of the surplus in the absence of interagent transfers. Most of the work in the large bargaining-and matching literature ignores this initial ownership of the surplus. We show that when investments are not observable to potential partners, initial ownership affects the efficiency of equilibrium investments and affects the agents' payoffs. In particular, it is possible that reallocating initial ownership could increase welfare on both sides of the match.

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File URL: http://economics.sas.upenn.edu/system/files/12-008.pdf
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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 12-008.

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Length: 38 pages
Date of creation: 12 Mar 2012
Date of revision:
Handle: RePEc:pen:papers:12-008
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  1. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, 07.
  2. Michael Peters & Aloysius Siow, 2001. "Competing Premarital Investment," Working Papers peters-01-02, University of Toronto, Department of Economics.
  3. Bulow, Jeremy I. & Levin, Jonathan, 2003. "Matching and Price Competition," Research Papers 1818, Stanford University, Graduate School of Business.
  4. Mailath, George J. & Samuelson, Larry & Postlewaite, Andrew, 2013. "Pricing and investments in matching markets," Theoretical Economics, Econometric Society, vol. 8(2), May.
  5. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2006. "The Theory of Assortative Matching Based on Costly Signals," CEPR Discussion Papers 5543, C.E.P.R. Discussion Papers.
  6. repec:bla:restud:v:76:y:2009:i:1:p:253-281 is not listed on IDEAS
  7. Shi, Shouyong, 2001. "Frictional Assignment. I. Efficiency," Journal of Economic Theory, Elsevier, vol. 98(2), pages 232-260, June.
  8. Jan Eeckhout & Philipp Kircher, 2008. "Sorting and Decentralized Price Competition," PIER Working Paper Archive 08-020, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  9. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  10. Thomas Gall & Patrick Legros & Andrew Newman, 2006. "The timing of education," ULB Institutional Repository 2013/7026, ULB -- Universite Libre de Bruxelles.
  11. Ed Hopkins, 2005. "Job Market Signalling of Relative Position, or Becker Married to Spence," ESE Discussion Papers 134, Edinburgh School of Economics, University of Edinburgh.
  12. Michael Ostrovsky & Michael Schwarz, 2008. "Information Disclosure and Unraveling in Matching Markets," NBER Working Papers 13766, National Bureau of Economic Research, Inc.
  13. Rege, Mari, 2008. "Why do people care about social status?," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 233-242, May.
  14. Adrian Masters, 2008. "Commitment, advertising and efficiency of two-sided investment in competitive search equilibrium," 2008 Meeting Papers 260, Society for Economic Dynamics.
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