Document Type
Discussion Paper
Publication Date
4-1-2014
CFDP Number
1946
CFDP Revision Date
2014-11-01
CFDP Pages
87
Abstract
We study markets in which agents first make investments and are then matched into potentially productive partnerships. Equilibrium investments and the equilibrium matching will be efficient if agents can simultaneously negotiate investments and matches, but we focus on markets in which agents must first sink their investments before matching. Additional equilibria may arise in this sunk-investment setting, even though our matching market is competitive. These equilibria exhibit inefficiencies that we can interpret as coordination failures. All allocations satisfying a constrained efficiency property are equilibria, and the converse holds if preferences satisfy a separability condition. We identify sufficient conditions (most notably, quasiconcave utilities) for the investments of matched agents to satisfy an exchange efficiency property as well as sufficient conditions (most notably, a single crossing property) for agents to be matched positive assortatively, with these conditions then forming the core of sufficient conditions for the efficiency of equilibrium allocations.
Recommended Citation
Nöldeke, Georg and Samuelson, Larry, "Investment and Competitive Matching" (2014). Cowles Foundation Discussion Papers. 2347.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2347