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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Matching with externalities
Organization Unit
  • Marek Pycia
  • M Bumin Yenmez
  • English
Institution Centre for Economic Policy Research (CEPR)
Series Name Discussion Paper Series
Number DP13994
ISSN 0265-8003
Number of Pages 44
Date 2019
Abstract Text 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.
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