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Unraveling of Dynamic Sorting

Author

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  • Ettore Damiano
  • Hao Li

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.

Suggested Citation

  • Ettore Damiano & Hao Li, 2004. "Unraveling of Dynamic Sorting," 2004 Meeting Papers 174, Society for Economic Dynamics.
    • Handle: RePEc:red:sed004:174
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    References listed on IDEAS

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    More about this item

    Keywords

    Random matching; Search externality; Endogenous participation; complementarity;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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