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When Opposites Attract: Is the Assortative Matching Always Positive?

Reito, Francesco (2011): When Opposites Attract: Is the Assortative Matching Always Positive?

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Abstract

This paper shows that the positive assortative matching of Ghatak (1999) and Van Tassel (1999) is not a general result and always depends on the distribution of safe and risky types. Some new implications are: (i) borrowers may be better off by forming mixed groups. (ii) a mixed pooling equilibrium is possible when homogeneous pooling equilibria do not exist, and even when the reservation income of borrowers is equal to zero.

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