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Assortative Matching, Reputation, and the Beatles Break-Up

  • Lones Smith

    (University of Michigan)

  • Axel Anderson

    (University of Michigan)

Consider Becker's (1973) classic static matching model, with output a stochastic function of unobserved types. Assume symmetric incomplete information about types, and thus commonly observed Bayesian posteriors. Matching is then assortative in these `reputations' if expected output is supermodular in types. We instead consider a standard dynamic version of this world, and discover a robust failure of Becker's global result. We show that as the production outcomes grow, assortative matching is neither efficient nor an equilibrium for high enough discount factors. Specifically, assortative matching fails around the highest reputation agents for `low-skill concealing' technologies. Our theory implies the dynamic result that high-skill matches (like the Beatles) eventually break~up. Our results owe especially to two findings: (a) value convexity due to learning undermines match supermodularity; and (b) for a fixed policy in optimal learning, the second derivative of the value function explodes geometrically at extremes.

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File URL: http://128.118.178.162/eps/game/papers/0201/0201002.pdf
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Paper provided by EconWPA in its series Game Theory and Information with number 0201002.

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Length: 23 pages
Date of creation: 08 Jan 2002
Date of revision:
Handle: RePEc:wpa:wuwpga:0201002
Note: Type of Document - ; prepared on PC; to print on HP; pages: 23; figures: included
Contact details of provider: Web page: http://128.118.178.162

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  1. Wolinsky, Asher, 1990. "Information Revelation in a Market with Pairwise Meetings," Econometrica, Econometric Society, vol. 58(1), pages 1-23, January.
  2. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  3. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Shimer, R. & Smith, L., 1998. "Assortive Matching and Search," Papers 98-09, Michigan - Center for Research on Economic & Social Theory.
  5. Lones Smith, 2006. "The Marriage Model with Search Frictions," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1124-1146, December.
  6. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation," Harvard Institute of Economic Research Working Papers 1777, Harvard - Institute of Economic Research.
  7. Mortensen, Dale T, 1982. "Property Rights and Efficiency in Mating, Racing, and Related Games," American Economic Review, American Economic Association, vol. 72(5), pages 968-79, December.
  8. Neil E. Gretsky & Joseph M. Ostroy & William R. Zame, 1990. "The Nonatomic Assignment Model," UCLA Economics Working Papers 605, UCLA Department of Economics.
  9. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-46, July-Aug..
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