Premuneration Values and Investments in Matching Markets

George J. Mailath (), Andrew Postlewaite () and Larry Samuelson ()
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Larry Samuelson: Department of Economics, Yale University

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We examine markets in which agents make investments and then match into pairs, creating surpluses that depend on their investments and that can be split between the matched agents. In general, each of the matched agents would ”own" part of the surplus in the absence of interagent transfers. Most of the work in the large bargaining-and matching literature ignores this initial ownership of the surplus. We show that when investments are not observable to potential partners, initial ownership affects the efficiency of equilibrium investments and affects the agents' payoffs. In particular, it is possible that reallocating initial ownership could increase welfare on both sides of the match.

Keywords: Directed search; matching; premuneration value; prematch investments; search (search for similar items in EconPapers)
JEL-codes: C78 D40 D41 D50 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth and nep-mic
Date: 2012-03-12
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