Search-and-matching theory

In economics, search and matching theory is a mathematical framework attempting to describe the formation of mutually beneficial relationships over time. It offers a way of modeling markets in which frictions prevent instantaneous adjustments of the level of economic activity.

Search and matching theory has been especially influential in labor economics, where it has been used to describe the formation of new jobs. Among other applications, it has been used as a framework for studying frictional unemployment.

The founders of search and matching theory are Dale T. Mortensen (Northwestern University), Peter A. Diamond and Christopher A. Pissarides. The latter has published a textbook treatment of the matching approach to labor markets in 'Equilibrium Unemployment Theory.' Mortensen, Diamond and Pissarides were awarded the 2010 Nobel Prize in Economics for 'fundamental contributions to search and matching theory'.