Matching with Externalities

Pycia, Marek; Yenmez, M Bumin

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

Citation

Pycia, M., & Yenmez, M. B. (2023). Matching with Externalities. The Review of Economic Studies, 90(2), 948-974. https://doi.org/10.1093/restud/rdac032

• Journal Article Type: Article
• Acceptance Date: Jun 1, 2022
• Online Publication Date: Jun 24, 2022
• Publication Date: Mar 6, 2023
• Deposit Date: Aug 15, 2023
• Publicly Available Date: Aug 15, 2023
• Journal: The Review of Economic Studies
• Print ISSN: 0034-6527
• Electronic ISSN: 1467-937X
• Publisher: Oxford University Press
• Peer Reviewed: Peer Reviewed
• Volume: 90
• Issue: 2
• Pages: 948-974
• DOI: https://doi.org/10.1093/restud/rdac032
• Keywords: Economics and Econometrics
• Public URL: https://durham-repository.worktribe.com/output/1718181