Targeted Search with Horizontal Differentiation in the Marriage Market (with Huangxing Yang) [PDF]
Journal of Economic Behavior & Organization, Vol 164, August 2019, p31-62.
Abstract: We develop a search/matching model in the marriage market with heterogeneous men (a continuum of types) and heterogeneous women (a finite number of types). The model has two distinguishing features. First, men and women are also horizontally differentiated. Second, the search is targeted: each type of woman constitutes a distinctive submarket, and men are able to choose beforehand in which submarkets to participate, but the search is random within each submarket. We show that there is always a unique equilibrium in which men are endogenously segmented into different submarkets, and that the equilibrium matching pattern is weakly positive assortative. We then explore how the equilibrium marriage pattern changes horizontally and vertically as some exogenous shocks occur. In particular, we show that an Internet-induced increase in search efficiency would make the marriage pattern overall more assortative, while an increase in the dispersion of the horizontal match fitness could make the marriage pattern overall less assortative.
Inter-Dealer Trades in OTC Markets — Who Buys and Who Sells? (with Chung-Yi Tse) [PDF]
Review of Economic Dynamics, Vol 39, January 2021, p220-257.
Abstract: In an OTC market where dealers' inventory capacities differ, dealers trade among themselves to rebalance inventories for facilitating the sale and purchase of the asset to and from their investor clients. In a market where the asset is sold quickly, the small-capacity dealers sell to the large-capacity dealers to help them replenish their inventories. Conversely, in a slow market where it takes a relatively long time for the asset to be sold, the small-capacity dealers buy from the large-capacity dealers to help them free up inventory capacities. The prediction, though counterintuitive, is supported by some available empirical evidence.
Unobservable Investments and Search Frictions [PDF]
Forthcoming in Canadian Journal of Economics
Abstract: This paper studies investment incentives in a dynamic random search environment, where a seller entrant can make unobservable investments to decrease the production cost. In the unique steady state equilibrium, sellers play a mixed strategy over investments and buyers play a mixed strategy over prices. When buyers make take-it-or-leave-it offers, the equilibrium payoffs and social welfare are constant given any search friction and equal to the equilibrium values when investments are observable (indicating no investment). This novel property remains true even when the investment strategy becomes socially optimal as search frictions diminish.