The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Search Theory (New Perspectives)

  • Shouyong Shi
Reference work entry


This article reviews the recent development of search theory. We begin with a standard model of undirected (or random) search and illustrate that the equilibrium is generically inefficient. Then, we show that the market can restore efficiency by allowing individuals on one side of the market to use prices to direct other individuals’ searches. Two mechanisms of directed search – price posting and auction – are analysed and a number of applications of the framework are discussed. In addition, we briefly describe search theory as a microfoundation for monetary economics. Finally, we conclude by speculating a few directions of future research.


Assortative matching Asymmetric information Auctions Bargaining Contract theory Directed search Efficient allocation Fiat money First-price auctions Labour market search Matching Mechanism design Monetary search theory Optimal dynamic contracts Price dispersion Price posting Random-matching models Risk aversion Search models of unemployment Search theory Sequential search models Trading frictions Unemployment insurance Value theory of money Wage dispersion Wage posting 

JEL Classifications

D83 J64 D5 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Shouyong Shi
    • 1
  1. 1.