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Endogenous matching in a market with heterogeneous principals and agents
Journal article   Peer reviewed

Endogenous matching in a market with heterogeneous principals and agents

Konstantinos Serfes
International journal of game theory, v 36(3), pp 587-619
Mar 2008

Abstract

Assignment Game C78 Organization/Planning Operations Research/Decision Theory Risk sharing Economic Theory Endogenous matching Game Theory, Economics, Social and Behav. Sciences D81 Economics / Management Science
We employ the assignment game of Shapley and Shubik (Int J Game Theory 1:111–130, 1972) to study the endogenous matching patterns in a market that consists of heterogenous principals and agents. We show that, in general, the equilibrium matching is non-assortative. We then characterize the equilibrium relationship between risk and performance pay and risk and fixed compensation. This is the first paper that characterizes the equilibrium matching, to its fullest possible extent, building on the Holmstrom and Milgrom (Econometrica 55:303–328, 1987) principal-agent model. This model has been used extensively in the empirical literature and therefore we hope that our results will be of value to empirical researchers who wish to study a principal-agent market.

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Web of Science research areas
Economics
Mathematics, Interdisciplinary Applications
Social Sciences, Mathematical Methods
Statistics & Probability
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