Equilibrium and Matching Under Price Controls

41 Pages Posted: 31 Jan 2015

Multiple version iconThere are 2 versions of this paper

Date Written: January 13, 2015

Abstract

The paper considers a one-to-one matching with contracts model in the presence of price controls. This set-up contains two important streams in the matching literature, those with and those without monetary transfers, as special cases and allows for intermediate cases with some restrictions on the monetary transfers that are feasible. An adjustment process that ends with a stable outcome is presented, thereby proving the existence of stable outcomes. The process contains the deferred acceptance algorithm of Gale and Shapley (1962) and the approximate auction mechanism of Demange, Gale, and Sotomayor (1986) as special cases. The paper presents a notion of competitive equilibrium, called Drèze equilibrium, for this class of models, an extension of the concept as developed by Drèze (1975) for economies with divisible commodities subject to price controls. It is shown that Drèze equilibrium allocations are equivalent to allocations induced by stable outcomes. One implication is the existence of Drèze equilibria. Another implication is the equivalence of a competitive equilibrium concept and the concept of stable outcomes that is valid with and without monetary transfers as well as when monetary transfers are limited.

Keywords: Price Controls, Matching, Stable Outcomes, Competitive Equilibrium, Drèze Equilibrium.

JEL Classification: C71, C78, D45, D51

Suggested Citation

Herings, P. Jean-Jacques, Equilibrium and Matching Under Price Controls (January 13, 2015). Available at SSRN: https://ssrn.com/abstract=2557996 or http://dx.doi.org/10.2139/ssrn.2557996

P. Jean-Jacques Herings (Contact Author)

Maastricht University ( email )

Department of Economics
P.O. Box 616
6200 MD Maastricht
Netherlands
+31 43 3883636 (Phone)
+31 43 3884878 (Fax)

HOME PAGE: http://www.personeel.unimaas.nl/p.herings/herings.htm

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