Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2009

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Moral hazard and equilibrium matchings in a market for partnerships

Ayça Kaya*, Galina Vereschagina

Date: 2009-05-17 11:00 am – 11:30 am
Last modified: 2009-05-10

Abstract


This paper embeds a repeated partnership game with imperfect monitoring into a matching environment. We show that even though the underlying technology of production exhibits no complementarities with respect to types of the partners, the presence of imperfect monitoring leads to non-trivial matching predictions. In particular, if the agents' effort is complementary to their own and their partners' types (marginal products of effort are increasing in types), equilibrium matching structure is negative (i.e., the high-type agents are matched with the low-type partners). If, on the other hand, effort and type are (sufficiently) substitutable, the types are matched positively in the equilibrium.

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