Darrell Duffie
- Published in print:
- 2012
- Published Online:
- October 2017
- ISBN:
- 9780691138961
- eISBN:
- 9781400840519
- Item type:
- chapter
- Publisher:
- Princeton University Press
- DOI:
- 10.23943/princeton/9780691138961.003.0003
- Subject:
- Economics and Finance, Financial Economics
This chapter introduces the modeling of search and random matching in large economies. The objective is to build intuition and techniques for later chapters. After some mathematical prerequisites, it ...
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This chapter introduces the modeling of search and random matching in large economies. The objective is to build intuition and techniques for later chapters. After some mathematical prerequisites, it defines the notion of random matching. It then invokes the law of large numbers to calculate the cross-sectional distribution of types of matches. This is extended to multiperiod search, first in discrete-time settings and then in continuous time. The optimal search intensity of a given agent, given the cross-sectional distribution of types in the population, is characterized with Bellman's principle. The chapter then briefly takes up the issue of equilibrium search efforts.Less
This chapter introduces the modeling of search and random matching in large economies. The objective is to build intuition and techniques for later chapters. After some mathematical prerequisites, it defines the notion of random matching. It then invokes the law of large numbers to calculate the cross-sectional distribution of types of matches. This is extended to multiperiod search, first in discrete-time settings and then in continuous time. The optimal search intensity of a given agent, given the cross-sectional distribution of types in the population, is characterized with Bellman's principle. The chapter then briefly takes up the issue of equilibrium search efforts.
