Center for Economic Research, Department of Economics, University of Minnesota
This paper studies one-to-one two-sided matchings with
externalities and explores its application to multiple
principal-agent models with principal-agent assignment being
endogenously determined. Each individual has to make two strategic
decisions: to choose a partner and to sign a contract with his
partner. Each individual may care about not only to whom he
matches and what contract he signs but also other people's
matchings and contracts, that is, there may exist externalities.
Equilibrium is defined inductively. A blocking pair takes all the
equilibria in the residual market into account. To reflect the
asymmetric distribution of power between principals and agents,
the concept principal-equilibrium is introduced, which refines the
I show that under certain conditions (i) there always exists a
Pareto optimal equilibrium, (ii) there always exists a Pareto
optimal principal-equilibrium and (iii) the set of equilibria
coincides with the core. In general, the set of equilibria could
be empty and an equilibrium could be non-Pareto optimal.
This paper provides a unified framework for one-to-one
two-sided matching models such as job matchings, housing markets,
auctions and marriages. A generalization of this framework to
a social partitioning game is provided.
Li, S., (1993), "Competitive Matching Equilibrium and Multiple Principal-Agent Models", Discussion Paper No. 267, Center for Economic Research, Department of Economics, University of Minnesota.
Competitive Matching Equilibrium and Multiple Principal-Agent Models.
Center for Economic Research, Department of Economics, University of Minnesota.
Retrieved from the University of Minnesota Digital Conservancy,
Content distributed via the University of Minnesota's Digital Conservancy may be subject to additional license and use restrictions applied by the depositor.