TY - JOUR

T1 - The theory of assortative matching based on costly signals

AU - Hoppe, Heidrun C.

AU - Moldovanu, Benny

AU - Sela, Aner

N1 - Funding Information: Acknowledgements. We are grateful to Bruno Biais and to two anonymous referees for numerous comments that greatly improved the quality of the exposition. We also wish to thank Larry Ausubel, Ilan Eshel, John Moore, Georg Nöldeke, Avner Shaked, Moshe Shaked, Xianwen Shi, Lones Smith, Asher Wolinsky, and participants at the conference “Matching and Two-Sided Markets”, Bonn, 2006, for helpful remarks. Thomas Tröger gave an illuminating discussion during a seminar at the University of Bonn. This research has been partially financed by the Max Planck Research Prize and by the German Science Foundation through SFB 15-TR.

PY - 2009

Y1 - 2009

N2 - We study two-sided markets with a finite number of agents on each side, and with two-sided incomplete information. Agents are matched assortatively on the basis of costly signals. Asymmetries in signalling activity between the two sides of the market can be explained by asymmetries either in size or in heterogeneity. Our main results identify general conditions under which the potential increase in expected output due to assortative matching (relative to random matching) is offset by the costs of signalling. Finally, we examine the limit model with a continuum of agents and point out differences and similarities to the finite version. Technically, the paper is based on the elegant theory about stochastic order relations among differences of order statistics, pioneered by Barlow and Proschan in 1966 in the framework of reliability theory.

AB - We study two-sided markets with a finite number of agents on each side, and with two-sided incomplete information. Agents are matched assortatively on the basis of costly signals. Asymmetries in signalling activity between the two sides of the market can be explained by asymmetries either in size or in heterogeneity. Our main results identify general conditions under which the potential increase in expected output due to assortative matching (relative to random matching) is offset by the costs of signalling. Finally, we examine the limit model with a continuum of agents and point out differences and similarities to the finite version. Technically, the paper is based on the elegant theory about stochastic order relations among differences of order statistics, pioneered by Barlow and Proschan in 1966 in the framework of reliability theory.

UR - http://www.scopus.com/inward/record.url?scp=58149293246&partnerID=8YFLogxK

U2 - 10.1111/j.1467-937X.2008.00517.x

DO - 10.1111/j.1467-937X.2008.00517.x

M3 - Article

AN - SCOPUS:58149293246

VL - 76

SP - 253

EP - 281

JO - Review of Economic Studies

JF - Review of Economic Studies

SN - 0034-6527

IS - 1

ER -