SIER Working Paper Series

This paper models a two-sided matching market where workers can only match with rms that they are acquainted with. Each worker may conduct searches to acquaint himself with new rms. Concepts of stability and eciency are de ned. We use the marginal value theorem of linear programming to show workers never search too little in the sense that all stable matchings are ecient. We then prove that in a large market which satis es some regularity conditions, workers never search too much, i.e. all ecient matchings can be made stable.