Two-Sided Investment and Matching with Multidimensional Cost Types and Attributes
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AbstractHeterogeneous buyers and sellers must make investments before entering a continuum assignment market. I show that efficient ex post contracting equilibria (Cole, Mailath and Postlewaite 2001b) exist in a general assignment game framework. I then shed light on what enables and what precludes coordination failures. A simple condition, absence of technological multiplicity, guarantees efficient investments for each pair, but a mismatch of agents may still occur. However, using optimal transport theory, I also show that mismatch is heavily constrained in certain multi-dimensional environments with differentiated agents and no technological multiplicity. Under technological multiplicity, even extreme ex ante heterogeneity need not preclude inefficiencies.
CitationDizdar, Deniz. 2018. "Two-Sided Investment and Matching with Multidimensional Cost Types and Attributes." American Economic Journal: Microeconomics, 10 (3): 86-123. DOI: 10.1257/mic.20150147
- C78 Bargaining Theory; Matching Theory
- D41 Market Structure, Pricing, and Design: Perfect Competition
- D86 Economics of Contract: Theory
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