Optimal Dynamic Matching
65 Pages Posted: 10 Aug 2015 Last revised: 17 Jun 2018
Date Written: August 9, 2015
We study a dynamic matching environment where individuals arrive sequentially. There is a tradeoff between waiting for a thicker market, allowing for higher quality matches, and minimizing agents' waiting costs. The optimal mechanism cumulates a stock of incongruent pairs up to a threshold and matches all others in an assortative fashion instantaneously. In decentralized settings, a similar protocol ensues in equilibrium, but expected queues are inefficiently long. We quantify the welfare gain from centralization, which can be substantial, even for low waiting costs. We also evaluate welfare improvements generated by transfer schemes and by matching individuals in fixed time intervals.
Keywords: Dynamic Matching, Mechanism Design, Adoption, Kidney Exchange, Labor Markets
JEL Classification: C78, D9, E24, J1, J64
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