Matching with Externalities

42 Pages Posted: 3 Aug 2014 Last revised: 26 May 2015

Marek Pycia

University of California, Los Angeles (UCLA)

M. Bumin Yenmez

Boston College

Date Written: May 2015

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. In addition, we 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. Furthermore, we establish novel comparative statics on externalities.

Suggested Citation

Pycia, Marek and Yenmez, M. Bumin, Matching with Externalities (May 2015). Available at SSRN: https://ssrn.com/abstract=2475468 or http://dx.doi.org/10.2139/ssrn.2475468

Marek Pycia (Contact Author)

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

M. Bumin Yenmez

Boston College ( email )

140 Commonwealth Ave.
Maloney Hall 327
Chestnut Hill, MA 02467
United States

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