Competitive Matching Equilibrium and Multiple Principal-Agent Models

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Competitive Matching Equilibrium and Multiple Principal-Agent Models

Published Date

1993-01

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Center for Economic Research, Department of Economics, University of Minnesota

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Working Paper

Abstract

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 equilibrium. 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.

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Previously Published Citation

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.

Suggested citation

Li, Shuhe. (1993). Competitive Matching Equilibrium and Multiple Principal-Agent Models. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/55567.

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