Efficient investment, search, and sorting in matching markets

Alp Atakan (), Michael Richter () and Matan Tsur ()
Additional contact information
Alp Atakan: Department of Economics, Queen Mary University of London
Michael Richter: Department of Economics, Baruch College, Zicklin School of Business and Department of Economics, Royal Holloway, University of London
Matan Tsur: Department of Economics, University of Bristol

Theoretical Economics, Forthcoming

Abstract: We study markets where heterogeneous agents first make investment decisions and then engage in costly search to form productive matches. The trading process is random search and bargaining with explicit search costs. Despite potential hold-up and matching problems, we prove that the constrained efficient allocation is an equilibrium: the agents' private incentives to invest and to accept/reject potential partners as they search are perfectly aligned with the social benefit. Furthermore, we establish a new sorting result for two-sided markets, equilibrium existence, and conditions for uniqueness.

Keywords: Investment; Search; Sorting; Matching (search for similar items in EconPapers)
JEL-codes: C78 D50 D83 J12 J24 J64 (search for similar items in EconPapers)
Date: 2026-01-23
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