Heterogeneous Discount Factors in an Assignment Model with Search Frictions
We look at a simple market with two-sided heterogeneity and pairwise meetings. On the supply side are two landlord types who differ in the quality of their apartments. On the demand side is a continuum of tentant types who differ in their valuations for apartment types and their patience. For infinitesimal search frictions and an atomless tanant type distribution, we full ycharacterize all possible steady stage equilibria in a typical region of the parameter space. Our main finding is that the heterogeneous discount factors can cause strong deviations from the Walrasian outcome even when we asymptotically remove all the search frictions. All conventional frictional models with non-Walrasian limits are qualitatively different from the model in this paper.
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