Skip to main content
Discussion Paper

Investment and Competitive Matching

We study markets in which agents first make investments and are then matched into potentially productive partnerships. Equilibrium investments and the equilibrium matching will be efficient if agents can simultaneously negotiate investments and matches, but we focus on markets in which agents must first sink their investments before matching. Additional equilibria may arise in this sunk-investment setting, even though our matching market is competitive. These equilibria exhibit inefficiencies that we can interpret as coordination failures.