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An Equilibrium Analysis of Search and Breach of Contract

Listed author(s):
  • Diamond, Peter
  • Maskin, Eric

The literature on markets where agents have imperfect information about their trading possibilities has been growing considerably. Many models of this literature depend fundamentally on asymmetries : either buyers or sellers set prices but not both. We, however, shall consider a symmetric model where individuals meet pairwise and negotiate contracts. Individuals find potential contracting partners in a costly, stochastic search process. The purpose of a contract is to carry out a single project. The worth of a project depends on the quality of the match between the two individuals. Our model, in fact, assumes for simplicity precisely two qualities : good (project with large output) and poor (project with small output). An individual, therefore, can be in any of these three positions : without a partner, in a poor partnership, or in a good partnership.

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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 130.

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Length: 45 pages
Date of creation: 1978
Handle: RePEc:wrk:warwec:130
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