Rigidity of Transfers and Unraveling in Matching Markets

55 Pages Posted: 20 Jan 2013 Last revised: 18 Feb 2015

See all articles by Songzi Du

Songzi Du

University of California, San Diego (UCSD) - Department of Economics

Yair Livne

Independent

Date Written: December 9, 2014

Abstract

We study the role of transfers in the timing of matching. In our model, some agents have the option of matching early and exiting in period 1, before others arrive in period 2; in period 2 there is a centralized institution that implements a stable matching after all agents arrive. We prove that without flexible transfers, as the market gets large, on average at least one quarter of all agents in period 1 have strict incentives to match early and skip the centralized matching, if they anticipate others are participating in the centralized matching of period 2. We define a minimal notion of sequential stability and prove that without flexible transfers the probability of sequential stability tends to 0 as the market gets large. We show that flexible transfers eliminate these timing problems.

Keywords: matching, unraveling, transfers, sequential stability

JEL Classification: C78, D47

Suggested Citation

Du, Songzi and Livne, Yair, Rigidity of Transfers and Unraveling in Matching Markets (December 9, 2014). Available at SSRN: https://ssrn.com/abstract=2203910 or http://dx.doi.org/10.2139/ssrn.2203910

Songzi Du (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

Yair Livne

Independent

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