Search and matching theory (economics)

In economics, search and matching theory is a mathematical framework attempting to describe the formation of mutually beneficial relationships over time. It is closely related to stable matching theory.

Search and matching theory has been especially influential in labor economics, where it has been used to describe the formation of new jobs. Search and matching theory evolved from an earlier framework called 'search theory'. Where search theory studies the microeconomic decision of an individual searcher, search and matching theory studies the macroeconomic outcome when one or more types of searchers interact.^{[citation needed]} It offers a way of modeling markets in which frictions prevent instantaneous adjustments of the level of economic activity. Among other applications, it has been used as a framework for studying frictional unemployment.

One of the founders of search and matching theory is Dale T. Mortensen of Northwestern University. A textbook treatment of the matching approach to labor markets is Christopher A. Pissarides' book Equilibrium Unemployment Theory.^[1] Mortensen and Pissarides, together with Peter A. Diamond, were awarded the 2010 Nobel Prize in Economics for 'fundamental contributions to search and matching theory'.^[2]

^ Pissarides, Christopher (2000). Equilibrium Unemployment Theory (2nd ed.). MIT Press. ISBN 978-0-262-16187-9.
^ Economic Prize Committee of the Royal Swedish Academy of Sciences, 'The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2010'

[P2000-1] Pissarides, Christopher (2000). Equilibrium Unemployment Theory (2nd ed.). MIT Press. ISBN 978-0-262-16187-9.

[2] Economic Prize Committee of the Royal Swedish Academy of Sciences, 'The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2010'

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