Equilibria in Matching Markets with Soft and Hard Liquidity Constraints

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Abstract

We consider a matching with contracts model in the presence of liquidity constraints on the buyers side. Liquidity constraints can be either soft or hard. A convergent sequence of economies with increasingly stringent soft liquidity constraints is an economy with hard liquidity constraints at the limit. The limit of a corresponding convergent sequence of competitive equilibria may fail to be a competitive equilibrium in the limit economy. We establish limit results of two alternative notions of competitive equilibrium, quantity-constrained competitive equilibrium and expectational equilibrium, which do not suffer from such discontinuity problems. The implications of these limit results are discussed.
Original languageEnglish
PublisherMaastricht University, Graduate School of Business and Economics
Number of pages26
DOIs
Publication statusPublished - 20 Sep 2021

Publication series

SeriesGSBE Research Memoranda
Number013
ISSN2666-8807

JEL classifications

  • c72 - Noncooperative Games
  • c78 - "Bargaining Theory; Matching Theory"
  • d45 - "Rationing; Licensing"
  • d52 - Incomplete Markets

Keywords

  • soft liquidity constraints
  • hard liquidity constraints
  • matching with contracts
  • Competitive equilibrium
  • quantity-constrained competitive equilibrium
  • Expectational Equilibrium
  • limit result

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