A Dynamic Model of Search and Intermediation

35 Pages Posted: 10 Feb 2010

See all articles by Gautam Bose

Gautam Bose

UNSW Australia Business School, School of Economics

Abhijit Sengupta

The University of Sydney - Discipline of Economics

Date Written: February 9, 2010

Abstract

This paper develops a dynamic model of an economy with search frictions in which homogeneous agents choose between specializing as producers or as merchants, and can change occupation at any time. Merchants operate alongside a decentralized search market and provide immediacy in trade in return for a price. Agents who know the location of a merchant have the option of paying the merchant’s price and avoiding search. We characterize equilibria in symmetric Markov strategies, and derive conditions under which merchants and their clients form a repeated relationship. We analyze welfare and explore conditions for the endogenous rise of an institution of intermediation.

Keywords: Search, endogenous intermediation, repeated interaction

JEL Classification: D02, D51, D83

Suggested Citation

Bose, Gautam and Sengupta, Abhijit, A Dynamic Model of Search and Intermediation (February 9, 2010). UNSW Australian School of Business Research Paper No. 2010 ECON 04, Available at SSRN: https://ssrn.com/abstract=1550088 or http://dx.doi.org/10.2139/ssrn.1550088

Gautam Bose (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Abhijit Sengupta

The University of Sydney - Discipline of Economics ( email )

P.O. Box H58
Australia Square
Sydney, NSW 2006
Australia
+61 2 9351 6612 (Phone)
+61 2 9351 4433 (Fax)

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