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Assignment games with externalities revisited

Author

Listed:
  • Jens Gudmundsson

    (Lund University)

  • Helga Habis

    (Corvinus University of Budapest)

Abstract

We study assignment games with externalities. The value that a firm and a worker create depends on the matching of the other firms and workers. We ask how the classical results on assignment games are affected by the presence of externalities. The answer is that they change dramatically. Though stable outcomes exist if agents are “pessimistic”, this is a knife-edge result: we show that there are problems in which the slightest optimism by a single pair erases all stable outcomes. If agents are sufficiently optimistic, then there need not exist stable outcomes even if externalities are vanishingly small. The negative result persists also when we impose a very restrictive structure on the values and the externalities. Furthermore, stability and efficiency no longer go hand in hand and the set of stable outcomes need not form a lattice with respect to the agents’ payoffs.

Suggested Citation

  • Jens Gudmundsson & Helga Habis, 2017. "Assignment games with externalities revisited," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 247-257, October.
    • Handle: RePEc:spr:etbull:v:5:y:2017:i:2:d:10.1007_s40505-017-0117-4
    DOI: 10.1007/s40505-017-0117-4
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    References listed on IDEAS

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    8. Pycia, Marek & Yenmez, M. Bumin, 2019. "Matching with Externalities," CEPR Discussion Papers 13994, C.E.P.R. Discussion Papers.
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    Cited by:

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    4. Bo Chen, 2019. "Downstream competition and upstream labor market matching," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(4), pages 1055-1085, December.

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    More about this item

    Keywords

    Two-sided matching; Assignment games; Externalities; Stability;
    All these keywords.

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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