Random Matching Model Research Articles

Five shades of green: Heterogeneous environmental attitudes in an evolutionary game model

An environmental policy to foster virtuous behaviour does not automatically establish a social norm in a population; that is, the policy might not be socially acceptable or enforceable. Some agents feel compelled to abide by environmental social norms and embrace them, but others do not. Some might want to imitate their peers, while others might prefer not to conform and play the role of a maverick. In this model, we describe the heterogeneity of preferences by proposing a taxonomy of five possible agent types that enrich the traditional triplet presented in the literature. We then employ a random matching model to study how a social norm spreads within a population when its composition changes. Considering three relevant population compositions (scenarios), we show that what is most important for the successful diffusion of social norms is not whether, but why agents abide by it.

How people pay each other: Data, theory, and calibrations

Using a representative sample of the U.S. adult population, we analyze which payment methods consumers use to pay other consumers (p2p) and how these choices depend on transaction and demographic characteristics. We construct a random matching model of consumers with diverse preferences over the use of payment methods for p2p payments. The model is calibrated to the share of p2p payments made with cash, checks, and electronic technologies from 2015 to 2019. We find about two-thirds of consumers have a first p2p payment preference for cash. One-third rank checks first. Approximately 94 percent of consumers rank electronic technologies second.

Money Mining and Price Dynamics

We develop a random-matching model to study the price dynamics of monies produced privately according to a time-consuming mining technology. For our leading example, there exists a unique equilibrium where the value of money increases over time and reaches a steady state. There is also a continuum of perfect-foresight equilibria where the price of money inflates and bursts gradually over time. Initially, money is held for a speculative motive, but it acquires a transactional role as it becomes sufficiently abundant. We study fiat, commodity, and crypto monies, endogenous acceptability, and adopt implementation and equilibrium approaches. (JEL E31, E42, E51, N13, N14, N23, N24)

Money mining and price dynamics: The case of divisible currencies

We develop a random-matching model to study the price dynamics of divisible monies produced privately through mining. The equilibrium set is composed of a unique equilibrium where the value of money increases until it reaches a steady state and, if money has no intrinsic value, a continuum of perfect-foresight equilibria where the price of money inflates and bursts over time. Early on private money is held for a speculative motive and it acquires a transactional role when money supply becomes sufficiently abundant. We study different mining and matching technologies, fiat and commodity monies, single and competing currencies.

How People Pay Each Other: Data, Theory, and Calibrations

Using a representative sample of the U.S. adult population, we analyze which payment methods consumers use to pay other consumers (p2p) and how these choices depend on transaction and demographic characteristics. We additionally construct a random matching model of consumers with diverse preferences over the use of different payment methods for p2p payments. The random matching model is calibrated to the share of p2p payments made with cash, paper check, and electronic technologies observed from 2015 to 2019. We find about two thirds of consumers have a first p2p payment preference of cash. The remaining one third rank checks first. Approximately 93 percent of consumers rank electronic technologies second. Our empirical analysis finds that the most significant factors in determining the payment method used are the transaction value and the age and education of the payer.

More on Money Mining and Price Dynamics: Competing and Divisible Currencies

We develop a random-matching model to study the price dynamics of divisible monies produced privately by using a time-consuming mining technology. There exists a unique equilibrium where the value of money increases until it reaches a steady state. There is also a continuum of perfect-foresight equilibria indexed by the starting value of the currency where the price of money inflates and bursts over time. Early on private money is held for a speculative motive and it acquires a transactional role when money supply becomes sufficiently abundant. We study gold- and crypto-mining technologies, fiat and commodity monies, single and competing currencies.

Evolutionary game dynamics of combining the imitation and aspiration-driven update rules

So far, most studies on evolutionary game dynamics in finite populations have concentrated on a single update rule. However, given the impacts of the environment and individual cognition, individuals may use different update rules to change their current strategies. In light of this, the current paper reports on a study that constructed a mixed stochastic evolutionary game dynamic by combining the imitation and aspiration-driven update processes. The target was to clarify the influences of the aspiration-driven process on the evolution of the level of cooperation by considering the behavior of a population in which individuals have two strategies available: cooperation and defection. Through a numerical analysis of unstructured populations and simulation analyses of structured populations and of the random-matching model, the following results were found. First, the mean fraction of cooperators varied alongside the probability with which the individual adopted the aspiration-driven update rule. In the Prisoner's Dilemma and coexistence games, the aspiration-driven update process promoted cooperation in the well-mixed population but inhibited it in structured ones and the random-matching model; however, in the coordination game, the aspiration-driven update process was seen to exert the opposite effect on cooperation by inhibiting the latter in a homogeneously mixed population but promoting it in structured ones and in the random-matching model. Second, the mean fraction of cooperators changed with the aspiration level in the differently structured populations and random-matching model, and there appeared a phase transition point. Third, the evolutionary characteristics of the mean fraction of cooperators maintained robustness in the differently structured populations and random-matching model. These results extend evolutionary game theory.

Endogenous Matching and Money with Random Consumption Preferences

Abstract Current money matching models employ either random matching or endogenous matching processes, both of which oversimplify the problem. We maintain that, although most economic interactions are intentional, some randomness remains. We offer an endogenous matching model of money with random consumption preferences. Our model preserves the intentionality of economic interactions while leaving scope for chance. We identify the conditions for potential monetary and nonmonetary equilibria and compare them to those of other endogenous matching and random matching models.

Money Mining and Price Dynamics

We develop a random-matching model to study the price dynamics of monies produced privately according to a time-consuming mining technology. We provide examples of mining technologies for which there exists a unique equilibrium where the value of money increases over time and reaches a steady state. There is also a continuum of perfect-foresight equilibria where the price of money inflates and bursts gradually over time. Initially, money is held for a speculative motive but it acquires a transactional role as it becomes sufficiently abundant. We study fiat, commodity, and crypto monies, and adopt implementation and equilibrium approaches.

Price dispersion in stationary networked markets

Different sellers often sell the same good at different prices. Using a strategic bargaining model, I characterize how the equilibrium prices of a good depend on the interaction between its sellers' costs, its buyers' values, and a network capturing various frictions associated with trading it. In contrast to the standard random-matching model of bargaining in stationary markets, I allow agents to strategically choose whom to make offers to, which qualitatively changes how the network shapes prices. As in the random-matching model, the market decomposes into different submarkets, and—in the limit as bargaining frictions vanish—the law of one price holds within but not across them. But strategic choice of partners changes both how the market decomposes into different submarkets and the determinants of each submarket's price.

Effects of sampling interaction partners and competitors in evolutionary games

The sampling of interaction partners depends on often implicit modelling assumptions, yet has marked effects on the dynamics in evolutionary games. One particularly important aspect is whether or not competitors also interact. Population structures naturally affect sampling such that in a microscopic interpretation of the replicator dynamics in well-mixed populations competing individuals do not interact but do interact in structured populations. In social dilemmas interactions with competitors invariably inhibit cooperation while limited local interactions in structured populations support cooperation by reducing exploitation through cluster formation. These antagonistic effects of population structures on cooperation affect interpretations and the conclusions depend on the details of the comparison. For example, in the Snowdrift game, spatial structure may inhibit cooperation when compared to the replicator dynamics. However, modifying the replicator dynamics to include interactions between competitors lowers the equilibrium frequency of cooperators, which changes the conclusions and space is invariably beneficial, just as in the Prisoner's Dilemma. These conclusions are confirmed by comparisons with random matching models, which mimic population structures but randomly reshuffle individuals to inhibit spatial correlations. Finally, the differences in the dynamics with and without interactions among competing individuals underlies the differences between death-birth and birth-death updating in the spatial Moran process: death-birth supports cooperation because competitors tend not to interact whereas they tend to do for birth-death updating and hence cooperators provide direct support to competitors to their own detriment.

Foundation of competitive equilibrium with non-transferable utility

This paper investigates the dynamic foundation of a competitive equilibrium, studying a sequence of random matching models between ex ante heterogeneous buyers and sellers under two-sided incomplete information with no entry, where each agent is endowed with non-transferable utility. The economy is populated with two sets of infinitesimal agents, buyers and sellers, who have private information about their own valuations of the object. In each period, buyers and sellers in the pool are matched to draw randomly a pair of expected payoffs, which will realize if the long term relationship is formed. Each player decides whether or not to agree to form a long term relationship, conditioned on his private information. If both parties agree, then they leave the pool, receiving the expected payoff in each period while the long term relationship continues. The existing long term relationship is terminated either by will or by a random shock, upon which both parties return to the respective pools of agents. We quantify the amount of friction by the time span of each period. We demonstrate that as the friction vanishes, any sequence of stationary equilibrium outcomes, in which trade occurs with a positive probability, converges to the competitive equilibrium, under a general two sided incomplete information about the private valuation of each agent.

Worker Selection, Hiring, and Vacancies

This paper incorporates worker selection into a random matching model with multi-worker firms. Unlike the standard Diamond-Mortensen-Pissarides (DMP) model, the extended model is compatible with cross-sectional behavior of vacancy yields, which rise with employment growth and worker turnover, but fall with establishment size. Using calibrated versions of the standard and worker selection models, I show that accounting for these patterns has quantitatively important policy implications. I also compare the worker selection and the directed search models. While both models account for these patterns equally well, they differ with regard to labor market policy. (JEL E24, J23, J63, J64)

A comparison of deep multilayer networks and Markov random field matching models for face recognition in the wild

Robustness to a diverse range of image transformations and distortions has been an everlasting goal of visual pattern recognition. While there have been a huge number of efforts to advance the state-of-the art in this direction over the last decades, two prominent outstanding schemes, among others, are deep multilayer architectures and graphical models, providing some degree of robustness to undesired image perturbations. In this study, the authors aim at shedding some light on the underlying concepts, mechanisms, strengths and potentials of each methodology while discussing their relative merits from a practical point of view. In particular, they discuss the underlying motivations for the construction of deep multilayer architectures and undirected graphical models, also known as Markov random fields. The principles in the construction of each architecture, how invariance properties are achieved in each approach, the efficiency of each approach in terms of computations required during train and test as well as the degree of human labour required in each approach are discussed. Finally, an experimental comparison of the performances of the two frameworks is performed on a challenging problem of face recognition in unconstrained settings in the presence of a wide range of undesirable visual perturbations.

Unemployment history and frictional wage dispersion

Recent evidence shows that baseline search models struggle to match the observed levels of wage dispersion. This paper studies a random matching search model with human capital losses during unemployment. Wage dispersion increases, as workers accept lower wages to avoid long unemployment spells. The model explains between a third and half of the observed residual wage dispersion. When adding on-the-job search, the model accounts for all of the residual wage dispersion and generates substantial dispersion even for high values of non-market time. The paper thus addresses the trade-off between explaining frictional wage dispersion and the cyclical behavior of unemployment.

Efficiency in a search and matching model with participation policy

This note presents a random search and matching model with ex ante heterogeneity in worker productivity. A Social Planner with the power to prevent labor market participation by the least productive is shown to increase economic efficiency. This is true even at the Hosios rule which, under worker homogeneity, implements the constrained efficient allocation.

Trejos–Wright with a 2-unit bound: Existence and stability of monetary steady states

This paper investigates a Trejos–Wright random matching model of money with a consumer take-it-or-leave-it offer and with individual money holdings in the set {0,1,2}. It is shown that three kinds of monetary steady states exist generically: (1) pure-strategy full-support steady states, (2) mixed-strategy full-support steady states, and (3) non-full-support steady states. A full-support steady state exists if and only if a non-full-support steady state exists. Stability of these steady states is also studied. Both pure-strategy and mixed-strategy full-support steady states are locally stable. However, non-full-support steady states are unstable.

The instability of some non-full-support steady states in a random matching model of money

Zhu (2003) shows existence of full-support monetary steady states with strictly concave value functions in a random matching model with individual money holdings in {0,1,2,…,B} for a general B. He also shows that corresponding to each such steady state is an l-replica steady state for each l∈N: money is traded in bundles of l units, the support is {0,l,2l,…,lB}, and the value function is a step-function with jumps at points of the support. We show that such l-replicas are unstable if the underlying full-support steady state is a pure strategy steady state and if the support of the initial distribution is not {0,l,2l,…,lB}.

Endogenous Matching and Money with Random Consumption Preferences

Current money matching models employ either random matching or endogenous matching processes, both of which oversimplify the problem. We maintain that although most economic interactions are intentional, randomness still exists in consumption preferences. We offer an endogenous matching model of money with random consumption preferences. Our model preserves the intentionality of economic interactions while leaving scope for chance. We compare the potential monetary and nonmonetary equilibria to other endogenous matching and random matching models. We then consider the effects of government transaction policy and find that, consistent with earlier studies, government policy can prevent nonmonetary equilibria and create monetary equilibria.

Opposite policy implications in the theory of money and banking

The recent financial crisis creates a demand for welfare-based models of financial regulation and liquidity shortages. In this paper, we review policy implications from two cornerstone models and show that they imply different responses in terms of intertemporal returns of financial liabilities. In the first case, a version of the Cavalcanti and Wallace (1999), random-matching model, monitored agents are led to promote inflation in bank-issued money. In the second case, a sequential-service version of the Diamond and Dybvig (1983) model of bank runs with insolvency, increases in long-run returns can prevent bank runs by reducing the provision of liquidity.