Island matching

A plausible micro foundation for the matching function, postulated in models of equilibrium unemployment, is proposed. The flow of matches formed is an increasing and concave function of the number of jobs and workers to be matched holding the other constant, but exhibits increasing to scale. Nevertheless, the function is consistent with the observed Beveridge curve and the log linear relationship between the job finding rate and the vacancy-unemployment ratio. Although a market equilibrium in which wages are determined by ex post auctions is not constrained efficient, a modified auction exists that decentralizes the solution to the social planner's problem.