Assortative Matching with Explicit Search Costs

This paper analyzes a decentralized search and matching economy comprised of heterogeneous agents. It explores whether Becker's assortative matching result generalizes to an economy where agents engage in costly search. The paper looks at a model with additive search costs and transferable utility, gives a general proof of equilibrium existence and provides sufficient conditions under which equilibrium matching is assortative. In an economy with additive search costs, complementarities in joint production (supermodularity of the joint production function) leads to assortative matching. This is in contrast to previous literature which had shown that in a search economy with discounting,assortative matching may fail even when the joint production function is supermodular.