Search, adverse selection, and market clearing. (English) Zbl 1417.91356
Summary: We examine a dynamic decentralized trading model with infinitesimal sellers and buyers to investigate whether or not the market fails to clear in the limit of search friction vanishing. A seller, who has private information about product quality, and a buyer are matched to bargain over price. They form a long-term relationship if they reach agreement. They return to the matching pool if they fail to agree or the existing relationship is dissolved. The market fails to clear if and only if the ratio of agents’ patience over the dissolution rate exceeds a threshold.
MSC:
| 91B60 | Trade models |
| 91B40 | Labor market, contracts (MSC2010) |
| 90B40 | Search theory |
| 91B68 | Matching models |
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