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.