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Dark Markets by Darrell Duffie

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CHAPTER 3

Search for Counterparties

This chapter introduces the modeling of search and random matching in large economies. The objective is to build intuition and techniques for later chapters. After some mathematical prerequisites, the notion of random matching is defined. The law of large numbers is then invoked to calculate the cross-sectional distribution of types of matches. This is extended to multiperiod search, first in discrete-time settings and then in continuous time. The optimal search intensity of a given agent, given the cross-sectional distribution of types in the population, is characterized with Bellman’s principle. We then briefly take up the issue of equilibrium search efforts.

3.1 PRELIMINARIES

We fix some mathematical preliminaries, ...

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