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Equilibria in Matching Markets with Soft and Hard Liquidity Constraints

Author

Listed:
  • Herings, P. Jean-Jacques

    (RS: GSBE Theme Data-Driven Decision-Making, RS: GSBE Theme Conflict & Cooperation, Microeconomics & Public Economics)

  • Zhou, Yu

Abstract

We consider a matching with contracts model in the presence of liquidity constraints on the buyers side. Liquidity constraints can be either soft or hard. A convergent sequence of economies with increasingly stringent soft liquidity constraints is an economy with hard liquidity constraints at the limit. The limit of a corresponding convergent sequence of competitive equilibria may fail to be a competitive equilibrium in the limit economy. We establish limit results of two alternative notions of competitive equilibrium, quantity-constrained competitive equilibrium and expectational equilibrium, which do not suffer from such discontinuity problems. The implications of these limit results are discussed.

Suggested Citation

  • Herings, P. Jean-Jacques & Zhou, Yu, 2021. "Equilibria in Matching Markets with Soft and Hard Liquidity Constraints," Research Memorandum 013, Maastricht University, Graduate School of Business and Economics (GSBE).
    • Handle: RePEc:unm:umagsb:2021013
    DOI: 10.26481/umagsb.2021013
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    References listed on IDEAS

    as
    1. Schlegel, Jan Christoph, 2022. "The structure of equilibria in trading networks with frictions," Theoretical Economics, Econometric Society, vol. 17(2), May.
    2. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, July.
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    7. Alfred Galichon & Scott Duke Kominers & Simon Weber, 2019. "Costly Concessions: An Empirical Framework for Matching with Imperfectly Transferable Utility," Journal of Political Economy, University of Chicago Press, vol. 127(6), pages 2875-2925.
    8. P. Jean‐Jacques Herings & Yu Zhou, 2022. "Competitive Equilibria In Matching Models With Financial Constraints," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 777-802, May.
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    12. Herings, P. Jean-Jacques, 2020. "Expectational Equilibria in Many-to-one Matching Models with Contracts - A Reformulation of Competitive Equilibrium," Research Memorandum 018, Maastricht University, Graduate School of Business and Economics (GSBE).
    13. Tamás Fleiner & Ravi Jagadeesan & Zsuzsanna Jankó & Alexander Teytelboym, 2019. "Trading Networks With Frictions," Econometrica, Econometric Society, vol. 87(5), pages 1633-1661, September.
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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