Premuneration Values and Investments in Matching Markets

39 Pages Posted: 15 Mar 2012

See all articles by George J. Mailath

George J. Mailath

University of Pennsylvania - Department of Economics; Research School of Economics, ANU

Andrew Postlewaite

University of Pennsylvania - Department of Economics

Larry Samuelson

Yale University - Department of Economics; Yale University - Cowles Foundation

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Date Written: March 12, 2012

Abstract

We examine markets in which agents make investments and then match into pairs, creating surpluses that depend on their investments and that can be split between the matched agents. In general, each of the matched agents would ”own" part of the surplus in the absence of interagent transfers. Most of the work in the large bargaining-and matching literature ignores this initial ownership of the surplus. We show that when investments are not observable to potential partners, initial ownership affects the efficiency of equilibrium investments and affects the agents' payoffs. In particular, it is possible that reallocating initial ownership could increase welfare on both sides of the match.

Keywords: Directed search, matching, premuneration value, prematch investments, search

JEL Classification: C78, D40, D41, D50, D83

Suggested Citation

Mailath, George J. and Postlewaite, Andrew and Samuelson, Larry, Premuneration Values and Investments in Matching Markets (March 12, 2012). PIER Working Paper No. 12-008, Available at SSRN: https://ssrn.com/abstract=2021900 or http://dx.doi.org/10.2139/ssrn.2021900

George J. Mailath (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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HOME PAGE: http://web.sas.upenn.edu/gmailath/

Research School of Economics, ANU ( email )

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Andrew Postlewaite

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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Philadelphia, PA 19104-6297
United States
215-898-7350 (Phone)
215-573-2057 (Fax)

HOME PAGE: http://www.econ.upenn.edu/~apostlew

Larry Samuelson

Yale University - Department of Economics ( email )

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Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States