Endogenous matching predictions in a repeated partnership model with imperfect monitoring

Galina Vereshchagina and Ayça Kaya

No 829, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: This paper embeds a repeated partnership game with imperfect monitoring into a matching environment. We show that even though the underlying technology of production exhibits no complementarities with respect to types of the partners, the presence of imperfect monitoring leads to non-trivial matching predictions. In particular, if the agents' effort is complementary to their own and their partners' types (marginal products of effort are increasing in types), equilibrium matching structure is negative (i.e., the high-type agents are matched with the low-type partners). If, on the other hand, effort and type are (sufficiently) substitutable, the types are matched positively in the equilibrium.

Date: 2009
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