Matching with Externalities

47 Pages Posted: 7 Oct 2019

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019


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. Furthermore, we show that substitutability is a necessary condition for the existence of a stable matching in a maximal-domain sense and provide a characterization of substitutable choice functions. In addition, we establish novel comparative statics on externalities and 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.

JEL Classification: C78, D47, D62

Suggested Citation

Pycia, Marek and Yenmez, M. Bumin, Matching with Externalities (September 2019). CEPR Discussion Paper No. DP13994, Available at SSRN:

Marek Pycia (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006

M. Bumin Yenmez

Boston College ( email )

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

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