Premuneration Values and Investments in Matching Markets
We analyze a model in which agents make investments and then match into pairs to create a surplus. The agents can make transfers to reallocate their pretransfer ownership claims on the surplus. Mailath, Postlewaite and Samuelson (2013) showed that when investments are unobservable, equilibrium investments are generally ineﬀicient. In this paper we work with a more structured model that is suﬀiciently tractable to analyze the nature of the investment ineﬀiciencies.