Search theory, competitive equilibrium, and the Nash bargaining solution

Inkoo Cho and Akihiko Matsui

Journal of Economic Theory, 2013, vol. 148, issue 4, 1659-1688

Abstract: We investigate a canonical search-theoretic model without entry. Two agents are randomly matched with a long side being rationed. The matched agents face a pair of randomly drawn non-transferable payoffs, and then choose whether or not to form a partnership subject to a small probability of exogenous break down. As this probability and friction vanish, the Nash bargaining solution emerges as the unique undominated strategy equilibrium outcome if the mass of each party is the same. If the size of one party is larger than the other, the short side extracts the entire surplus, a sharp contrast to Rubinstein and Wolinsky (1985) [16].

Keywords: Matching; Search; Undominated strategy equilibrium; Nash bargaining solution (search for similar items in EconPapers)
JEL-codes: C70 C78 D83 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:4:p:1659-1688

DOI: 10.1016/j.jet.2013.04.003

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