Two-Sided Investment and Matching with Multi-Dimensional Cost Types and Attributes
43 Pages Posted: 19 Nov 2013 Last revised: 3 Jan 2017
Date Written: December 31, 2016
Abstract
Heterogeneous buyers and sellers must make investments before entering a continuum assignment market. I show that efficient ex-post contracting equilibria (Cole, Mailath and Postlewaite 2001a) exist in a general assignment game framework. I then shed light on what enables and what precludes coordination failures. A simple condition, absence of technological multiplicity, guarantees efficient investments for each pair, but a mismatch of agents may still occur. However, using optimal transport theory, I also show that mismatch is heavily constrained in certain multi-dimensional environments with differentiated agents and no technological multiplicity. Under technological multiplicity, even extreme ex-ante heterogeneity need not preclude inefficiencies.
Keywords: Matching, pre-match investments, coordination failure, mismatch, multi-dimensional attributes, assignment game, optimal transport
JEL Classification: C78, D41, D51
Suggested Citation: Suggested Citation