Matching rules

Vincy Fon and Francesco Parisi
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Vincy Fon: Department of Economics, George Washington University, USA, Postal: Department of Economics, George Washington University, USA
Francesco Parisi: School of Law, University of Minnesota, MN, USA; Department of Economics, University of Bologna, Italy, Postal: School of Law, University of Minnesota, MN, USA; Department of Economics, University of Bologna, Italy

Managerial and Decision Economics, 2008, vol. 29, issue 1, pages 57-70

Abstract: Institutions often utilize matching rules to achieve cooperative outcomes. However, the equilibrium induced by a matching rule may not be socially optimal. After presenting the case in which matching rules yield privately and socially optimal levels of cooperation, this article identifies the conditions which generate inefficient cooperation. Matching rules undershoot (i.e. parties cooperate less than is socially optimal) in one group of cases. In a second, more puzzling case, matching rules overshoot (i.e. parties that interact under a matching constraint are induced to cooperate more than is socially optimal). This paper identifies the conditions for such occurrences. Copyright © 2008 John Wiley & Sons, Ltd.

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