Holding Options in Search and Matching

Junghwan Seo
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Junghwan Seo: Yonsei University

Korean Economic Review, 1996, vol. 11, issue 2, 23-43

Abstract: This paper investigates the implications of adding a recall option in a dynamic model of search and matching. The effects of a holding option on market efficiency are examined by comparing the markets with and without a holding option. When preferences are homogeneous, a holding option tends to decrease market efficiency when the population is small, and to increase it when the population is large. When preferences are heterogeneous, a holding option tends to increase market efficiency when population is small, and to decrease it when the population is large. It is also shown that the existence of a holding option is an equilibrium. The results show the basic features of a reservation system. They also indicate that, in modeling a non-steady state search-and-match situation, the assumption of no recall can lead to the wrong conclusion about market efficiency.

JEL-codes: C78 D83 L83 (search for similar items in EconPapers)
Date: 1996
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