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Matching with externalities


Pycia, Marek; Yenmez, M Bumin (2019). Matching with externalities. Discussion Paper Series DP13994, Centre for Economic Policy Research (CEPR).

Abstract

We incorporate externalities into the stable matching theory of two-sided markets. Extending the classical substitutes condition to allow for externalities, we establish that stable matchings exist when agent choices satisfy substitutability. Furthermore, we show that substitutability is a necessary condition for the existence of a stable matching in a maximal-domain sense and provide a characterization of substitutable choice functions. In addition, we establish novel comparative statics on externalities and show that the standard insights of matching theory, like the existence of side-optimal stable matchings and the deferred acceptance algorithm, remain valid despite the presence of externalities even though the standard fixed-point techniques do not apply.

Abstract

We incorporate externalities into the stable matching theory of two-sided markets. Extending the classical substitutes condition to allow for externalities, we establish that stable matchings exist when agent choices satisfy substitutability. Furthermore, we show that substitutability is a necessary condition for the existence of a stable matching in a maximal-domain sense and provide a characterization of substitutable choice functions. In addition, we establish novel comparative statics on externalities and show that the standard insights of matching theory, like the existence of side-optimal stable matchings and the deferred acceptance algorithm, remain valid despite the presence of externalities even though the standard fixed-point techniques do not apply.

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5 citations in Microsoft Academic

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C78, D47, D62
Language:English
Date:September 2019
Deposited On:03 Jul 2018 14:18
Last Modified:14 Feb 2020 15:39
Series Name:Discussion Paper Series
Number of Pages:44
ISSN:0265-8003
OA Status:Closed
Official URL:https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13994
Related URLs:https://ssrn.com/abstract=3464522

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