Targeted Search in Matching Markets

Abstract: We propose a parsimonious matching model where people's choice of whom to meet endogenizes the degree of randomness in matching. The analysis highlights the interaction between a productive motive, driven by the surplus attainable in a match, and a strategic motive, driven by reciprocity of interest of potential matches. We find that the interaction between these two motives differs with preferences – vertical versus horizontal – and that this interaction implies that preferences estimated using our model can look markedly different from those estimated using a model where the degree of randomness is not endogenous. We illustrate these results using data on the U.S. marriage market and finish by showing that the model can rationalize the finding of aspirational dating.

DOI: https://doi.org/10.24149/wp1610r1

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