We investigate the role of search frictions in markets with price competition and how it leads to sorting of heterogeneous agents. There are two aspects of value creation: the match value when two agents actually trade and the probability of trading governed by the search technology. We show that positive assortative matching obtains when complementarities in the former outweigh complementarities in the latter. This happens if and only if the match-value function is root-supermodular, that is, its nth root is supermodular, where n reflects the elasticity of substitution of the search technology. This condition is weaker than the condition required for positive assortative matching in markets with random search. Keywords: Competitive search equilibrium, directed search, two-sided matching, decentralized price competition, complementarity, root-supermodularity, sorting
Sorting and Decentralized Price Competition
Econometrica, 2010, Vol. 78(2), 539–574. With Jan Eeckhout.
In search models with price competition the sorting of heterogeneous buyers and sellers depends on complementarities both in output and in search.
American Economic Review P&P, 2017, 107(5): 158–162 With J. Greenwood, C. Santos & M. Tertilt. In a quantitative equilibrium model of sexual behavior and HIV/AIDS transmission we study policies that encourage long-term partnerships. Go to paper
Econometrica, 2019 87(4): 1081-1113. With J. Greenwood, C. Santos and M. Tertilt A calibrated equilibrium search model of an HIV/AIDS epidemic is developed to analyze the direct impact and the behavioral adjustment to policies. Go to paper
Journal of Economic Theory, 2009, 114(2), pp. 445-471. With Manolis Galenianos. We study wage dispersion and (in)efficiency in directed search when workers can strategically apply for multiple jobs but firms can only make one offer. Go to paper
International Economic Review, 2012, Vol 53 (1), 1-21. With M. Galenianos. We study a finite directed-search wage posting game among heterogeneous firms (allowing for risk aversion, moral hazard,…), including limit theorems. Go to paper
Econometrica, 2015, Vol 83 (5), 1849-1875. With K. Kim. [online appendix] We introduce cheap-talk into a market game and study if the equilibrium can replicate the constraint efficient allocation under (reserve) price posting. Go to paper
Review of Economic Studies, 2019 86(4): 1411-1447. With Michèle Belot and Paul Muller. We develop and evaluate experimentally a novel tool that redesigns the job search process by providing tailored online advice about related occupations. Go to paper
B.E. Journals of Theoretical Economics, 2013, Vol 13 (1). With S. Ludwig and A. Sandroni. We document a revealed preference for randomization for “social goods”, while such non-standard behavior is not present for private consumption goods. Go to paper
American Economic Review, 2015, Vol 105 (10), 3030-3060. With Leo Kaas. We propose a tractable competitive search model with heterogeneous multi-worker firms, and investigate firm growth and business cycles. Go to paper