Repeated Matching Games: An Empirical Framework

William Marsh Rice University, Houston TX

Investigators

Abstract

Economists model the formation of relationships as the outcome of market forces using matching models. Matching models explain relationships such as marriage, employment, and business alliances. Most matching models are applied to relationships at a single point in time. However, relationships change over time and datasets tracking those changes are increasingly available. This project develops new methods, called repeated matching game, for studying how relationships change over time within a market framework. The central idea is that in forming partnerships, people consider how current relationships affect their future relationships. In addition to theory, the research project also develop new tools to analyze data for matching models. The research applies the method to study marriage, divorce and remarriage, careers of engineers to learn how job assignment and moving among firms affect promotion to more prestigious roles. The researchers also apply this model to study how early rounds of venture capital funding, including accelerator participation, raise the chance of receiving later rounds of funding and eventual startup success. The results provide inputs into matching decisions hence improve economic performance. This project introduces the concept of a repeated matching game, where each period agents can make new matches. The forward-looking agents consider how their matches today will affect their abilities to make productive matches in the future. The repeated matching game combines a dynamic discrete choice model at the level of an individual agent with a per-time period, transferable utility matching game of relationship formation. The repeated matching game has desirable properties that lead to tractable equilibrium computation. The project extends knowledge about these matching models, develops computer algorithms for model solutions, and create new estimators for the model's parameters. The project develops empirical applications to marriage and remarriage, workers switching firms and venture capitalists funding startups. The results of this research makes significant contribution to the matching game models as well provide some insights into labor market and other relationship policies. The results provide inputs into matching decisions hence improve economic performance. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.