Investment and Competitive Matching

Georg Nöldeke and Larry Samuelson ()
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Larry Samuelson: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/larry-samuelson

No 1946, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We study markets in which agents first make investments and are then matched into potentially productive partnerships. Equilibrium investments and the equilibrium matching will be efficient if agents can simultaneously negotiate investments and matches, but we focus on markets in which agents must first sink their investments before matching. Additional equilibria may arise in this sunk-investment setting, even though our matching market is competitive. These equilibria exhibit inefficiencies that we can interpret as coordination failures. All allocations satisfying a constrained efficiency property are equilibria, and the converse holds if preferences satisfy a separability condition. We identify sufficient conditions (most notably, quasiconcave utilities) for the investments of matched agents to satisfy an exchange efficiency property as well as sufficient conditions (most notably, a single crossing property) for agents to be matched positive assortatively, with these conditions then forming the core of sufficient conditions for the efficiency of equilibrium allocations.

Keywords: Matching; Investment; Coordination failure; Positive assortative matching; Efficiency (search for similar items in EconPapers)
JEL-codes: C7 D5 (search for similar items in EconPapers)
Pages: 87 pages
Date: 2014-04, Revised 2014-11
New Economics Papers: this item is included in nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Econometrica (May 2015), 83(3): 835-1260

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Journal Article: Investment and Competitive Matching (2015)
Working Paper: Investment and Competitive Matching (2014)
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