Separation cycles

This paper extends the two-sided matching literature with heterogeneous agents by considering endogenous separation behaviour by agents. When two agents divorce and return to the matching market, that separation decision affects the composition of singles in the market. By changing the average quality of singles in that market, they change the value of being unmatched. This externality effect is sufficiently strong and can support equilibrium separation cycles, even with constant returns to matching.Peer Reviewe