A Supply and Demand Framework for Two-Sided Matching Markets

33 Pages Posted: 5 May 2013 Last revised: 26 Sep 2017

See all articles by Eduardo M. Azevedo

Eduardo M. Azevedo

University of Pennsylvania - The Wharton School

Jacob Leshno

Chicago Booth

Date Written: October 14, 2014

Abstract

This paper develops a price-theoretic framework for matching markets with heterogeneous preferences. The model departs from the standard Gale and Shapley (1962) model by assuming that a finite number of agents on one side (colleges or firms) are matched to a continuum mass of agents on the other side (students or workers). We show that stable matchings correspond to solutions of supply and demand equations, with the selectivity of each college playing a role similar to prices.

We apply the model to an analysis of how competition induced by school choice gives schools incentives to invest in different aspects of quality. As another application, we characterize the asymptotics of school choice mechanisms.

Keywords: two-sided matching, school competition, market design

JEL Classification: C78, D47

Suggested Citation

Azevedo, Eduardo M. and Leshno, Jacob, A Supply and Demand Framework for Two-Sided Matching Markets (October 14, 2014). Journal of Political Economy, Vol. 124, No. 5, 2016, Available at SSRN: https://ssrn.com/abstract=2260567 or http://dx.doi.org/10.2139/ssrn.2260567

Eduardo M. Azevedo (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

HOME PAGE: http://www.eduardoMazevedo.com

Jacob Leshno

Chicago Booth ( email )

5807 S. Woodlawn Ave
Chicago, IL 60610
United States

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