Assignment Games with Externalities

Jens Gudmundsson and Helga Habis

Corvinus Economics Working Papers (CEWP) from Corvinus University of Budapest

Abstract: We examine assignment games, wherematched pairs of firms and workers create some monetary value to distribute among themselves and the agents aim to maximize their payoff. In the majority of this literature, externalities - in the sense that a pair’s value depends on the pairing of the others - have been neglected. However, inmost applications a firm’s success depends on, say, the success of its rivals and suppliers. Thus, it is natural to ask how the classical results on assignment games are affected by the introduction of externalities? The answer is – dramatically. We find that (i) a problem may have no stable outcome, (ii) stable outcomes can be inefficient (not maximize total value), (iii) efficient outcomes can be unstable, and (iv) the set of stable outcomes may not form a lattice. We show that stable outcomes always exist if agents are "pessimistic." This is a knife-edge result: there are problems in which the slightest optimism by a single pair erases all stable outcomes.

Keywords: two-sided matching; assignment game; externalities; stability; efficiency (search for similar items in EconPapers)
JEL-codes: C71 C78 D62 (search for similar items in EconPapers)
Date: 2015-09-18
New Economics Papers: this item is included in nep-gth and nep-net
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Working Paper: Assignment Games with Externalities (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cvh:coecwp:2015/16

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