Three essays on search and matching

In the first two essays, I study value discovery in discrete-time dynamic markets with imperfect information. One model examines a market with no payoff externalities while the other studies a market with a negative or crowding payoff externality. Short-lived buyers encounter infinite-lived sellers who provide heterogeneous quality goods. The number of trades at each seller in the prior period is public information. At first, buyers do not have information about the type of the good offered at any seller, but they can acquire private information about goods at a single seller. When there is no crowding, I find that coordination frictions and informational cascades prevent efficient outcomes in markets with no search costs as well as those with costly search. These markets continue to be inefficient even as the number of buyers goes to infinity. With crowding, the market endogenously segments into areas of known quality and unknown quality. In regions of unknown quality, informed traders drive out uninformed traders, reducing trade and forcing uninformed traders into regions of known quality—a pattern that superficially resembles risk-aversion, though buyers are risk-neutral. As time goes on, public information grows, in contrast to many herding models where information is lost. This market becomes more efficient over time as fewer buyers incur search costs each period. In the third essay, I construct a model of housing demand that depends on employment prospects and credit availability in a directed search framework. The threat of job loss encourages individuals to keep cash on hand and wait for bargains to emerge as homeowners who lost their jobs are willing to sell at a discount. Expected home price appreciation counterbalances the inclination to wait for bargains in equilibrium. The housing demand function resulting in equilibrium is found to be well-defined and monotonic. Ultimately, search frictions are found to be integral to the expected return on investment