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Pre-Matching Gambles

Author

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  • Zhang, Hanzhe

    (Michigan State University, Department of Economics)

Abstract

This paper investigates pre-matching gambles and provides a new reason to gamble: matching concerns. Examples of pre-matching gambles include occupational choices before the marriage market, college major choices before the labor market, and portfolio management before attracting future clients in the financial market. I show that people make risky investments they would not have made if they do not subsequently participate in a competitive matching market. A fundamental and unique feature of the competitive matching market, which I call the competitive matching effect, induces gambling. The paper also illustrates the relationship between social efficiency and inequality in this setting, and shows how progressive taxation eliminates social inefficiency, reduces inequality, and generates government revenue.

Suggested Citation

  • Zhang, Hanzhe, 2019. "Pre-Matching Gambles," Working Papers 2019-12, Michigan State University, Department of Economics.
  • Handle: RePEc:ris:msuecw:2019_012
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    References listed on IDEAS

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    Cited by:

    1. He, Simin & Wu, Jiabin & Zhang, Hanzhe, 2021. "Experimental and Noncooperative Analyses of Decentralized Matching with Transfers," Working Papers 2021-2, Michigan State University, Department of Economics.
    2. Wu, Jiabin & Zhang, Hanzhe, 2021. "Preference evolution in different matching markets," European Economic Review, Elsevier, vol. 137(C).

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    More about this item

    Keywords

    risk taking; investment and matching; competitive matching effect; efficiency and inequality; progressive taxation;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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