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My Fall 2010 conference in Aarhus.

• Course: The Economics of Search and Matching »

Materials for my upcoming fall course at Aarhus are under development here.

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Marriage, Fertility and Step-Families: An Equilibrium Analysis

Course: The Economics of Search and Matching 

Offered: Fall 2010

Instructor: John Kennes

Location: Aarhus University

This fall I will offer a course to advanced masters students (also elective PhD's) on the economics of search and matching at the University of Aarhus. This course will emphasize the use of search and matching models as a fundamental tool for economic analysis. The use of this tool will be illustrated by some key applications in the fields of family economics, labor economics, monetary economics, investment irreversibilities (kids, housing, specific human capital), networks and market design. This course will also highlight the importance of other fundamental tools of economic analysis such as dynamic decision theory, game theory, general equilibrium analysis, probability theory, calibration methods, behavioral economics, and microeconometrics. Some key empirical findings and puzzles will also be discussed.

> Link to official course description

Lecture plan 

There are 48 hours of lectures over 12 weeks. The lecture hours are organized by topic as follows. 

A) Matching Foundations (8 lecture hours)

1. The scope of search and matching theory in economic analysis
2. The Gale-Shapley matching model
3. The Becker matching model
4. Comparative statics in a matching market
5. Matching and pricing with frictions: The Diamond paradox
6. Matching and pricing with frictions: The Burdett-Judd model
7. Directed matching with frictions: Auctions
8. Directed matching with frictions: Price posting

B) Decision making inside a relationship (8 lecture hours)

1. Nash Bargaining
2. Rubinstein Bargaining
3. The Myerson-Satterthwaite theorem
4. Introduction to intrahousehold utility
5. The unitary model
6. The rotten kid theorem
7. Collective model
8. Comparative statics

1. One-sided search: McCall's optimal stopping problem
2. One-sided search: Jovanovic's learning problem
3. The Diamond-Mortensen-Pissarides model: steady state
4. The Diamond-Mortensen-Pissarides model: Aggregate shocks
5. The Andolfatto/Shimer puzzle
6. The Burdett-Coles model
7. The Kiyotaki-Wright model of monetary exchange
8. The Lagos-Wright model of monetary exchange

D) Descriptive statistics (4 hours)

1. Simple duration analysis: Theory and estimation
2. Simple duration analysis: Example
3. Abowd, Kramarz and Margolis (AKM) regression: Theory and estimation
4. Abowd, Kramarz and Margolis (AKM) regression: Example

E) Technology dispersion (6 hours)

1. The Eaton-Kortum/Julien, Kennes and King approach
2. Order statistics
3. Equilibrium technology dispersion property
4. Computation simplicity of directed search: Aggregate shocks and lots of heterogeneity
5. The block recursive property
6. Some quantitative results

F) Irreversible investments and risk sharing (6 hours)

1. An investment irreversiblity problem: Marriage, fertility and step-families
2. Some quantitative results
3. The hold-up problem
4. The recursive saddlepoint method: Marcet-Marimon (1998)
5. Risk sharing in the static collective model
6. Risk sharing in a dynamic collective model

G) Externalities and Peer Effects (4 hours)

1. Theory and evidence
2. School quality and the Tiebout model
3. Benabou's model of peer group effects
4. Montgomery's model of networks

H) Market design (4 hours)

1. The hospital-intern assignment problem
2. The kidney exchange problem
3. The Kelso-Crawford model
4. Sales pitch to learn lattice theory

Note: Links to the lecture slides will appear (at what hazard I cannot tell for sure).

Course reader 

There is a reader for the course, which contains a set of relevant journal articles (The inclusion of some of my own papers makes it a bit idiosyncratic - but you teach what you know). These articles are easy to obtain when you are logged onto the university network, but are a bit of a pain to get when you do not have access to such resources. The course reader can be purchased at the University of Aarhus bookstore for a nominal fee, which covers binding and photocopying costs. The contents of the reader are listed below.

1. Coase, Ronald (1937) "The Nature of the Firm,"  Economica, 4(16): 386-405.
2. Gale, David and Llyod S. Shapley (1962) "College Admissions and the Stability of Marriage," American Mathematical Monthly 69: 9-14.
3. Becker, Gary S (1973) "A Theory of Marriage: Part I," Journal of Political Economy, 81(4): 813-46.
4. Teulings, Coen N (1995) "The Wage Distribution in a Model of the Assignment of Skills to Jobs," Journal of Political Economy, 103(2): 280-315.
5. Diamond, Peter, (1971) "A Model of Price Adjustment", Journal of Economic Theory, (3)2: 156-168.
6. Burdett, Kenneth and Kenneth L. Judd (1983) "Equilibrium Price Dispersion" Econometrica, 51(4): 955-969.
7. Burdett, Kenneth, Souyong Shi, and Randall Wright (2001) Pricing and Matching with Frictions, Journal of Political Economy,
8. Julien, Benoit, John Kennes, and Ian King (2000) Bidding for Labor, Review of Economic Dynamics, 4: 619-649.
9. Nash, John (1950). "The Bargaining Problem," Econometrica 18 (2): 155–162
10. Rubinstein, Ariel (1982) "Perfect Equilibrium in a Bargaining Model". Econometrica 50 (1): 97–109.
11. Myerson, Roger B. and Mark A. Satterthwaite (1983). "Efficient Mechanisms for Bilateral Trading," Journal of Economic Theory 29: 265–281.
12. Becker, Gary S. (1974) "A Theory of Social Interactions," Journal of Political Economy, 82, 1063-1093.
13. Browning, Martin, Francois Bourguignon, Pierre-Andre Chiappori and Valerie Lechene (1994) "Income and Outcomes: A Structural Model of Intrahousehold Allocation," Journal of Political Economy, 102(6): 1067-96
14. McCall, John J. (1970) "Economics of information and job search," Quarterly Journal of Economics, 84: 113-126.
15. Jovanovic, Boyan (1979) "Job Matching and the Theory of Turnover," Journal of Political Economy, 87(5): 972-90.
16. Cox, D.R. (1972) Regression models and life-tables (with discussion)" Journal of the Royal Statistical Society Series, 34: 187-202.
17. Lancaster, T. (1979), Econometric methods for the duration of unemployment, Econometrica, 47: 939-956>
18. Pissarides, Christopher A (1987) "Search, Wage Bargains and Cycles," Review of Economic Studies, 54(3): 473-83.
19. Mortensen, Dale T (1988) "Matching: finding a partner for life or otherwise," American Journal of Sociology, 94, Supplement
20. Andolfatto, David, (1996) "Business Cycles and Labor-Market Search," American Economic Review, 86(1): 112-32
21. Robert Shimer (2005), "The cyclical behavior of equilibrium unemployment and vacancies," American Economic Review 95 (1): 25-49
22. Nobuhiro Kiyotaki and Randall Wright (1989) "On Money as a Medium of Exchange," Journal of Political Economy 97: 927-54.
23. Trejos, Alberto and Randall Wright (1995) "Search, Bargaining, Money, and Prices," Journal of Political Economy, 103(1): 118-41.
24. Lagos, Ricardo and Randall Wright (2005), "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, 113, 463-84.
25. Julien, Benoit, John Kennes, & Ian King (2008) "Bidding for money," Journal of Economic Theory, 142(1): 196-217.
26. Abowd, J, F. Kramarz and D. Margolis (1999),  "High-Wage Workers and High-Wage Firms," Econometrica, 67(2): 251-333.
27. Eaton, Jonathon and Samuel Kortum (2002) "Technology, Geography, and Trade," Econometrica, 70(5), 1741–1779.
28. K. Burdett and D. Mortensen (1998), "Wage differentials, employer size, and unemployment." International Economic Review 39: 257-73.
29. Fabien Postel-Vinay and Jean-Marc Robin (2002)  "Wage Dispersion with Worker and Employer Heterogeneity," Econometrica, 102(6): 1067-92
30. Julien, Benoit, John Kennes and Ian King (2006) "Residual Wage Disparity And Coordination Unemployment," International Economic Review, 47(3): 961-989
31. Kennes, John and John Knowles (2010) Marriage, Fertility and Step-Families: An Equilibrium Analysis, mimeo, University of Southampton.
32. Kydland, F. and E. C. Prescott (1977) "Rules Rather than Discretion: The Inconsistency of Optimal Plans". Journal of Political Economy: 473–492.
33. Marcet, Albert and Raymond Marimon (1998) "Recursive contracts" EUI working paper
34. Mazzocco, Maurizio (2004) "Saving, Risk Sharing, and Preferences for Risk," American Economic Review, 94, 1169-1182
35. Montgomery, J.D. (1991). "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, 81: 1408-18.
36. Rochet, J.C. and J. Tirole (2006) "Two-Sided Markets: A Progress Report," Rand Journal of Economics, 37(3): 645-667.
37. Weyl,Glen E. (2010) A Price Theory of Multi-Sided Platforms, American Economic Review, in press
38. Kennes, John and Aaron Schiff (2008) "Quality infomediation in search markets," International Journal of Industrial Organization, 26(5): pages 1191-1202
39. Roth, Al and E. Peranson (1999). "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design". American Economic Review 89 (4): 748–780.
40. Roth, Al, T. Sönmez, T and M.U. Ünver (2004). "Kidney exchange," Quarterly Journal of Economics 119(2): 457–488.
41. Kelso, Alexander S, Jr and Crawford, Vincent P (1982) "Job Matching, Coalition Formation, and Gross Substitutes," Econometrica, 50(6): 1483-1504

Books

Some of us also like to read books instead of just journal articles. Books give the authors more time for reflection at some cost of the excitement found in original research articles. Books also give much room towards thinking about how various results in the literature are connected. If you plan to do research, I recommend reading and owning the following books.

1. Diamond, Peter (1984) A Search-Equilibrium Approach to the Micro Foundations of Macroeconomics, MIT press.
2. Pissarides, Chris (2000) Equilibrium Unemployment Theory, 2nd edition, MIT press
3. Mortensen, Dale T. (2003) Wage Dispersion: Why are Similarly People Paid Differently? MIT press.
4. Roth, Alvin E. and Marilda Sotomayor (1990), Two-Sided Matching: A Study in Game-Theoretic Modeling and Analysis, Cambridge, Cambridge University Press.
5. Browning, Martin, Pierre-André Chiappori and Yoram Weiss (2010) The Economics of the Family, mimeo
6. Muthoo, Abinay (1999) Bargaining Theory with Applications,  Cambridge University Press, 1999
7. Becker, Gary (1991) Treatise on the Family, Enlarged edition, Harvard University Press.
8. Sargent, Thomas and Lars Ljungqvist (2004) Recursive Macroeconomic Theory, 2nd edition, MIT press
9. Adda, Jerome and Russell Cooper (2003) Dynamic Economics: Quantitaive Methods and Applications, MIT press.
10. Shimer, Robert (2010) Labor Markets and Business Cycles, Princeton University Press.
11. Ehrmisch, J. (2003) An Economic Analysis of the Family, Princeton University Press. 

Problem sets and exams

There are 5 problem sets for the course. Please access the offical course website on AULA for these materials, old exam questions, etc.

Human resources in Aarhus

Aarhus is a tremendous place to study economic decisions related to search and matching. Here is a list of Aarhus faculty/PhDs and longer term visitors in Aarhus this fall who are working in the area.

Ian King

Randall Wright

Ricardo Lagos

Robert Shimer

Dale Mortensen

Yoram Weiss

Rasmus Lentz

Moritz Ritter

Martin Browning

Benoit Julien

Bent Jesper Christiansen

Henning Bunzel

Rune Vejlin

Jesper Bagger

Sebi Buhai

John Kennes

Gustaf Bruze

John Knowles

Daniel le Maire

Michael Svarer

Michael Rosholm

Peter Jensen

Kenneth Lykke Sørensen

Malene Kallestrup Lamb

Lene Kromann

Torben Andersen

Aarhus also has many microeconometricians who study microdata relevant to search and matcing problems through the lens of natural experiments, regression discontinuities, instrumental variables techniques, etc.. The extent that all of us study the problem of endogeneity and unobserved heterogeneity using common data sources means that there are natural synergies. A small sample of the Aarhus people in this area includes

Marianne Simmonsen, Maria Knoth Humlum, Helena Skyt Nielsen, Nabanita Datta Gupta

Chiara Orsini, and Bjørn Hinnerich Tyrefors.

Aarhus also has CREATES, which is one of the world's leading group of time series econometricians (ranked 3rd in the world in time series by repec and 8th in the world by repec for econometrics). Access to this group of researchers means that Aarhus students gain a rich understanding of probability theory, statistics and econometrics: All valuable tools for the analysis of search and matching theory.

If you are interested in thinking about behavioural issues related to search and matching, you are well advised to see Alex Koch, Julia Nafziger, and Leonidas-Enrique (Kike) De-La-Rosa . If you are interested in questions related to information economics, you are well advised to talk to Per Baltzer Overgaard, Norovsambuu Tumennasan (whose thesis is about matching), Hans Frimor, Peter Ove Christensen.  Finally, we have a number of people in the organization and marketing groups who are interested in common problems related to transaction costs.

Finally, Aarhus is home of a number of international conferences and workshops, which focus on issues related to search and matching. Do attend. It will be my pleasure to help you mingle!

DGPE: Danish Graduate Program in Economics

The Danish Graduate program in economics offers a steady stream of courses that are highly relevant to the study of search and matching.  Here are some useful courses in 2010 at the University of Aarhus

• May 31-June2 2010 (Aarhus University)

"Duration Analysis"  Lecturer: Professor Jaap H Abbring, Tilburg University

 

• September 20-23 2010 (Aarhus University)

"Economics of Monetary Exchange" Lecturer Randall Wright, University of Wisconsin

• October 11-14 2010 (Aarhus University)

"Topics in Labour Market Dynamics". Lecturers: Professor Dale T Mortensen, Northwestern University and Ass. Professor Rasmus Lentz, University of Wisconsin

 

It is not an accident that we continue to attract great foreign researchers to visit Aarhus and give lectures. They are interested in getting to know our students, because students here are skilled and have access to great data. Be one of them!

Other complementary courses

Much of search and matching theory is about decisions over time. Oluf Posch of CREATES teaches a splendid course here on dynamic programming methods.

Danish data

Denmark has a wealth of data useful for the analysis of search and matching. Denmark is famous for its matched employee/employer/household register data. Since it is so well documented and studied, this data is often used as an important starting point for many empirical studies related to search and matching. Researchers at the University of Aarhus have spent countless hours working with data, which means much cleaning and documentation has been done to make it readily available. Interested student will find much support if they wish to pursue empirical projects. 

Students interested in using Danish data for projects related to this course can contact John Kennes for more information.

Internet resources for students

There are many helpful tools of study on the internet. Here are some resources.

Links to related courses, course notes, and other student centered resources

> Steve Williamson's course notes on labor and money search models

> Jaap Abbring's notes on structural duration analysis

> Yoram Weiss's course on family economics

> Yves Zenou's course on job search and job matching

> Bruno Van der Linden's notes on equilibrium search and matching models

> Albrecht and Vroman's course on macro labor economics

> Philipp Kircher's course: matching theory, competitive search, and competing mechanisms

> Daron Acemoglu's lecture slides, problem sets and notes

> Alexander Berentsen's course on monetary economics

> Randall Wright's course notes

> John Rust's old course in computational economics

> Russell Cooper's courses on dynamic methods

> Fuhito Kojima's mini lecture on matching and market design

> Kevin Wayne's com sci lecture slides: Gale-Shapley algorithm, Dynamic programming, etc

> Al Roth's lectures on the Kelso-Crawford model, lattice theory, Milgrom and Hatfield model

> The Price Theory of Two-Sided Markets by E. Glen Weyl

> Klaus Kultti's short note on proving the Myerson Satterthwaite theorem

> Xavier Vives occasional paper on supermodularity and supermodular games

> Raymund Duch's slides on Nash Bargaining and the Rubinstein game

> Raymund Duch's rules for writing mathematics

> Michele Tertilt's resources for PhD students

> David Andolfatto critiques sticky prices using search and matching as an alternative theory

> Steve Williamson's post on real business cycle theory and the Lucas Islands assumption

> Daron Acemoglu's manuscript: Lectures in Labor Economics

Youtube lectures

> Myerson's Nobel prize lecture: The revelation principle, Myerson-Satterthwaite theorem, etc.

> Al Roth's youtube Google lecture on market design

> Al Roth's youtube Yahoo lecture on market design

> Robert Gibbon's big picture video lecture: organization and economics

> Hal Varian's youtube on The Economics of Internet Search

> Hal Varian's youtube on Search Advertising

> Hal Varian's youtube on Computer mediated transactions

> Hal Varian explains Google's ad auction

> Ed Glaser talks about the economics of cities

> Nash bargaining via flexible bubget constraints

> Ben Pollack lecture on Backwards induction: ultimatums and bargaining

> Academic earth courses. See Math and probability for life sciences by Herbert Enderton

> Lectures by Buchanan on the Chicago School, as well as talks by other 'Austrian Schoolers'

> Lectures on 'discrete mathematical structures' by Prof. Kamala Krithivasan

Games, experiments, animations computer code, blogs, etc

A small set of resources allow us to think about search and matching problems using tools other than purely axiomatic reasoning. In the future I would like to see more fun and interactive tools used in the teaching and analysis of search and matching problems

> Wiki's animation of the Gale-Shapley algorithm

> Thomas Sargent's "Matlab code for Jovanovic's matching model,"

John Kenness

Associate Professor

University of Aarhus

Website under development.