Investments and the holdup problem in a matching market

Helmut Bester

Journal of Mathematical Economics, 2013, vol. 49, issue 4, 302-311

Abstract: This paper studies the properties of the steady state equilibrium in a bilateral matching market with ex ante investments at the market entry stage. Investment incentives depend on search frictions because both parties in a match are partially locked-in when they bargain over the joint surplus from their sunk investments. The associated holdup problem is more important for the long side of the market. In the extreme case of perfectly substitutable investments only the agents on the short side make investments. When market frictions become negligible, the market equilibrium approaches the Walrasian outcome.

Keywords: Holdup problem; Matching market; Investments (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Investments and the Holdup Problem in a Matching Market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:49:y:2013:i:4:p:302-311

DOI: 10.1016/j.jmateco.2013.04.008

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