Faculty of Economics and Business Administration Publications Database

Screening in a Matching Market

Volume: 68
Number: 4
Pages: 849 - 868
Month: October
ISSN-Print: 0034-6527
Link External Source: Online Version
Year: 2001
Keywords: Negotiation; Monopolies; Oligopolies; Product differentiation; Labor market
Abstract: Contract design under incomplete information is often analysed in a bilaterally monopolistic setting. If the informed party''s reservation value does not depend on its private information (its type), it is a standard result that the uninformed side offers ‘low’ types distorted contracts to reduce the information rent left to ‘high’ types. We challenge this result by embedding contract design in a matching market environment. We consider a market where players meet pairwise and where, in each match, either side may be chosen to make a take-it-or-leave-it offer. As frictions become sufficiently low, we find that the set of equilibria is independent of whether there is complete or incomplete information.