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Random versus Directed Search for Scarce Resources

Mekonnen, Teddy (2018) Random versus Directed Search for Scarce Resources. . (Unpublished)

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This paper studies how different search protocols affect social welfare in a search market. There is a mass of homogeneous agents (e.g., firms) and a smaller mass of objects (e.g., workers) that differ in quality. Agents search for objects either through a random or a directed search protocol. Random search protocol, in which agents are randomly paired to an object of any quality, gives rise to adversely selected markets. Directed search protocol, in which agents choose with which quality types to pair, gives rise to congestion. When utility is either non-transferable or transferable through Nash bargaining, I show that random search dominates directed search in terms of welfare, even though each agent would prefer to be able to direct her search. Furthermore, the result generalizes to the case when agents can only partially direct their search based on coarse information about quality, or when there is a small amount of taste heterogeneity in the agent's preferences.

Item Type:Report or Paper (Working Paper)
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URLURL TypeDescription Paper
Additional Information:I would like to express my deepest appreciation to Eddie Dekel, Federico Echenique, Bruno Strulovici, and Asher Wolinsky for their guidance and mentorship. This work has also greatly benefited from conversations with Odilon Câmara, Hector Chade, Laura Doval, João Ramos, Jesse Shapiro, Pierre-Olivier Weill, and numerous seminar participants.
Subject Keywords:random search, directed search, congestion, adverse selection
Classification Code:JEL Classifications: C78, D62, D83
Record Number:CaltechAUTHORS:20190531-124448253
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:96008
Deposited By: Tony Diaz
Deposited On:31 May 2019 19:54
Last Modified:03 Oct 2019 21:18

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