This paper analyzes the role played by intermediation in a decentralized market, where trade is carried out through bilateral bargaining, and where the bargaining outcome depends on the process of search for suitable trading partners. First, a dynamic model of random-matching and two-sided search with heterogeneous agents is developed. The characterization of stationary search equilibria is provided and it is shown that sorting externalities might cause multiplicity of equilibria to arise and might give rise to inefficient matching outcomes. Secondly, the incentive for intermediation to emerge endogenously in this environment is considered. Intermediation might speed up the matching process and might induce separation of the agents' types, thus enhancing sorting efficiency. Nonetheless, intermediation might also introduce search frictions that did not exist with decentralized search, and this impairs efficiency.

Matching, search and intermediation with two-sided heterogeneity

BURANI, NADIA
2008

Abstract

This paper analyzes the role played by intermediation in a decentralized market, where trade is carried out through bilateral bargaining, and where the bargaining outcome depends on the process of search for suitable trading partners. First, a dynamic model of random-matching and two-sided search with heterogeneous agents is developed. The characterization of stationary search equilibria is provided and it is shown that sorting externalities might cause multiplicity of equilibria to arise and might give rise to inefficient matching outcomes. Secondly, the incentive for intermediation to emerge endogenously in this environment is considered. Intermediation might speed up the matching process and might induce separation of the agents' types, thus enhancing sorting efficiency. Nonetheless, intermediation might also introduce search frictions that did not exist with decentralized search, and this impairs efficiency.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11585/68959
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