Review of Economic Studies Vol. 84 No. 3 2016
Matching with Phantoms*
Abstract
Searching for partners involves informational persistence that reduces future traders’ matching probability. In this article, traders who are no longer available but who left tracks on the market are called phantoms. We examine a dynamic matching market in which phantoms are a by-product of search activity, no coordination frictions are assumed, and non-phantom traders may lose time trying to match with phantoms. The resulting aggregate matching technology features increasing returns to scale in the short run, but has constant returns to scale in the long run. We embed a generalized version of this matching function in the canonical continuous-time equilibrium search unemployment model. Long-run constant returns to scale imply there is a unique steady state, whereas short-run increasing returns generate excess volatility in the short run and endogenous fluctuations based on self-fulfilling prophecies.
- DOI
- 10.1093/restud/rdw032
- Volume
- 84
- Issue
- 3
- Pages
- rdw032
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref