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A Dynamic Model of Search and Intermediation

Gautam Bose and Abhijit Sengupta

No 2010-04, Discussion Papers from School of Economics, The University of New South Wales

Abstract: This paper develops a dynamic model of an economy with search frictions in which homogeneous agents choose between specializing as producers or as merchants, and can change occupation at any time. Merchants operate alongside a decentralized search market and provide immediacy in trade in return for a price. Agents who know the location of a merchant have the option of paying the merchant’s price and avoiding search. We characterize equilibria in symmetric Markov strategies, and derive conditions under which merchants and their clients form a repeated relationship. We analyze welfare and explore conditions for the endogenous rise of an institution of intermediation.

Keywords: Search; endogenous intermediation; repeated interaction (search for similar items in EconPapers)
JEL-codes: D02 D51 D83 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2010-02
New Economics Papers: this item is included in nep-dge
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