Unraveling of Dynamic Sorting

Ettore Damiano () and Hao Li

No 174, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: We consider a two-sided, finite-horizon model of search and matching with heterogeneous types and complementarity between types. The quality of the pool of potential matches deteriorates as agents who have found mutually agreeable matches exit the market. With automatic participation of all agents in each round, the market performs a sorting function in that attractive types of agents have multiple chances to meet and match with their peers. However, the sorting function of the market is lost if agents incur an arbitrarily small cost in order to participate in each round. The market unravels as almost all agents rush to participate in the first round and match and exit with anyone they meet.

Keywords: Random matching; Search externality; Endogenous participation; complementarity (search for similar items in EconPapers)
JEL-codes: C78 D83 (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-dge and nep-ure
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Journal Article: Unravelling of Dynamic Sorting (2005)
Working Paper: Unraveling of Dynamic Sorting (2004)
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