Assortive Matching and Search.

This paper reexamines a classic insight of the assignment literature - when match- ing is assortative - in an environment with search frictions. We assume a continuum of heterogeneous agents who can produce only in pairs . If two agents form a match, they generate a ow of divisible output. We depart from the neoclassical assignment literature (e.g. Becker 1973) in assuming that match creation is time consuming: each unmatched agent faces a Poisson arrival of potential mates (Diamond 1982, Mortensen 1982, Pissarides 1990). As matching precludes further search, agents must weigh the opportunity cost of ceasing to search for better op- tions, against the benet of producing immediately.