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Matching with Contracts

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  • John William Hatfield
  • Paul R. Milgrom

Abstract

We develop a model of matching with contracts which incorporates, as special cases, the college admissions problem, the Kelso-Crawford labor market matching model, and ascending package auctions. We introduce a new "law of aggregate demand" for the case of discrete heterogeneous workers and show that, when workers are substitutes, this law is satisfied by profit-maximizing firms. When workers are substitutes and the law is satisfied, truthful reporting is a dominant strategy for workers in a worker-offering auction/matching algorithm. We also parameterize a large class of preferences satisfying the two conditions.

Suggested Citation

  • John William Hatfield & Paul R. Milgrom, 2005. "Matching with Contracts," American Economic Review, American Economic Association, vol. 95(4), pages 913-935, September.
    • Handle: RePEc:aea:aecrev:v:95:y:2005:i:4:p:913-935
    Note: DOI: 10.1257/0002828054825466
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