Decentralized Matching with Transfers: Experimental and Noncooperative Analyses

Abstract

We provide one of the first comprehensive experimental and theoretical investigation of decentralized matching markets with transfers of Shapley and Shubik (1972) and Becker (1973). Our contributions are threefold. First, our experiment shows that matching patterns and aggregate surpluses are affected by whether efficient matching is assortative and whether the pairwise Nash-Rubinstein bargaining outcome is stable (i.e., in the core), neither of which is predicted to matter in the canonical theory. Second, in markets with equal numbers of participants on the two sides, individual payoffs in our and others' experiments cannot be explained by existing refinements of the core, but are consistent with our noncooperative model's unique prediction. Third, in markets with unequal numbers of participants on the two sides, noncompetitive outcomes---that is, subjects on the long side of the market do not compete fully---are not captured by the canonical theory, but by our noncooperative model. Our investigation suggests that small-size matching markets may be better understood as multilateral bargaining problems.

Keywords: decentralized matching, matching with transfers, assignment games, bargaining

JEL Classification: C71, C72, C78, C92