Verifiability and Group Formation in Markets

68 Pages Posted: 21 Sep 2015

See all articles by Suzanne Scotchmer

Suzanne Scotchmer

University of California - Department of Economics (Deceased); University of California, Berkeley - School of Law; National Bureau of Economic Research (NBER)

Chris Shannon

University of California, Berkeley - Department of Economics

Date Written: August 30, 2015

Abstract

We consider group formation in markets with asymmetric information. Our model nests standard matching problems, including one-to-one, many-to-one, and many-to-many matching, as well as matching with salaries or contracts and matching with incomplete information. Prices for group positions and private goods as well as the groups that form are determined endogenously in equilibrium, as a result of demand and supply forces. The setup includes problems as diverse as moral hazard in teams, screening on ability, and mechanism design. Our analysis, including the definition of equilibrium and existence, revolves around the randomness in matching. Our main results characterize the limits on efficiency in such a general equilibrium, and show that a sufficiently rich set of group types can ensure the existence of an efficient equilibrium.

Keywords: matching, large markets, clubs, games, contracts, lotteries, general equilibrium

JEL Classification: C02, C62, D2, D62, D83

Suggested Citation

Scotchmer, Suzanne and Shannon, Chris, Verifiability and Group Formation in Markets (August 30, 2015). Available at SSRN: https://ssrn.com/abstract=2662578 or http://dx.doi.org/10.2139/ssrn.2662578

Suzanne Scotchmer

University of California - Department of Economics (Deceased)

Berkeley, CA 94720-3880
United States

University of California, Berkeley - School of Law

215 Boalt Hall
Berkeley, CA 94720-7200
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chris Shannon (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

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