 Stability and Contractual Efficiency in Matching with Contracts and Lexicographic PreferencesEconomics Bulletin, 2022, vol. 42, issue 1, 41 - 48 Abstract: We introduce an efficiency concept in matching markets with contracts called contractual efficiency. Contractual efficiency requires that each student is assigned to a school under her most preferred contractual term. We show that while in general it is not possible to have stable and contractually efficient matchings; if the preferences of each school are lexicographic, then there is a contractually efficient and stable matching. Moreover, we provided an algorithm, the Best-Term Deferred Acceptance (Best-Term DA) algorithm, that produces a contractually efficient and stable matching whenever schools' preferences are lexicographic. Finally, we turn to the question of whether a contractually efficient and stable matching can be implemented in dominant strategies. We show that in a two-stage matching market whereby contractual terms can be interpreted as pre-matching investments -each student first chooses her investment and then students and schools match according to the School-Optimal Stable Matching-, it is a dominant strategy for each student to choose the investment associated with the outcome of the Best-Term DA algorithm and the outcome of the two-stage market is precisely the outcome of the Best-Term DA algorithm. Keywords: matching; stability; contractual efficiency; lexicographic preferences (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-21-01076 Access Statistics for this article More articles in Economics Bulletin from AccessEcon |
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