Matching with Externalities

Marek Pycia and M. Bumin Yenmez

The Review of Economic Studies, 2023, vol. 90, issue 2, 948-974

Abstract: We incorporate externalities into the stable matching theory of two-sided markets. Extending the classical substitutes condition to markets with externalities, we establish that stable matchings exist when agent choices satisfy substitutability. 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 extend the standard insights of matching theory, like the existence of side-optimal stable matchings and the deferred acceptance algorithm, to settings with externalities even though the standard fixed-point techniques do not apply.

Keywords: Matching with externalities; Deferred acceptance algorithm; Substitutability; Labour markets with couples; C78; D47; D62 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Working Paper: Matching with Externalities (2019)
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