Working Paper: CEPR ID: DP13258
Authors: Benny Moldovanu; Deniz Dizdar; Nora Szech
Abstract: Agents in a finite two-sided market are matched assortatively, based on costlyinvestments. Besides signaling privately known, complementary types, the investmentsalso directly benefit the match partner. The bilateral external benefits inducea complex feedback cycle that amplifies the agents’ signaling investments. Ourmain results quantify how the feedback effect depends on the numbers of competitorson both sides of the market. This yields detailed insights into the equilibria oftwo-sided matching contests with incomplete information, in particular for marketsof small or intermediate size. It also allows us to shed some new light on therelationship between finite and continuum models of pre-match investment.
Keywords: matching; signaling; investment; feedback effect
JEL Codes: C78; D44; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of competitors on both sides of the market (L19) | investments made by agents (G11) |
| feedback effect (C92) | signaling investments made by agents (G24) |
| marginal external benefits (D62) | investment behaviors (G41) |
| number of competitors on both sides of the market (L19) | feedback effect (C92) |
| feedback effect (C92) | self-perpetuating investment behaviors (G41) |