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Assortative matching through signals

Author

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  • Friedrich Poeschel

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, Brasenose College - University of Oxford)

Abstract

We model signalling in two-sided sequential search with heterogeneous agents and transferable utility. Search via meetings is time-consuming and thereby costly due to discounting. Search via signals is costless, so that agents can avoid almost all search costs if only the signals are truthful. We show that signals will indeed be truthful if the match output function is su ciently super- modular. The unique separating equilibrium is then characterised by perfect positive assortative matching despite the search frictions. In this equilibrium, agents successfully conclude their search after a single meeting, and overall match output is maximised. These results continue to hold when there are also explicit search costs in addition to discounting.

Suggested Citation

  • Friedrich Poeschel, 2008. "Assortative matching through signals," Working Papers halshs-00585986, HAL.
    • Handle: RePEc:hal:wpaper:halshs-00585986
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00585986
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    References listed on IDEAS

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