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Unraveling Results from Comparable Demand and Supply: An Experimental Investigation

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  • Muriel Niederle

    ()
    (Department of Economics, Stanford University, Stanford, CA 94305-6072, USA
    National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138, USA)

  • Alvin E. Roth

    ()
    (Department of Economics, Stanford University, Stanford, CA 94305-6072, USA)

  • M. Utku Ünver

    ()
    (Department of Economics, Boston College, Chestnut Hill, MA 02467, USA)

Abstract

Markets sometimes unravel, with offers becoming inefficiently early. Often this is attributed to competition arising from an imbalance of demand and supply, typically excess demand for workers. However this presents a puzzle, since unraveling can only occur when firms are willing to make early offers and workers are willing to accept them. We present a model and experiment in which workers’ quality becomes known only in the late part of the market. However, in equilibrium, matching can occur (inefficiently) early only when there is comparable demand and supply: a surplus of applicants, but a shortage of high quality applicants.

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Bibliographic Info

Article provided by MDPI, Open Access Journal in its journal Games.

Volume (Year): 4 (2013)
Issue (Month): 2 (June)
Pages: 243-282

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Handle: RePEc:gam:jgames:v:4:y:2013:i:2:p:243-282:d:26539

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Keywords: Two-side Matching; market design; unraveling; experiments;

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References

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  1. Guillaume Frechette & Alvin E. Roth & M. Utku Ünver, 2004. "Unraveling Yields Inefficient Matchings: Evidence from Post- Season College Football Bowls," Microeconomics 0404001, EconWPA, revised 24 Sep 2004.
  2. Muriel Niederle & Alvin E Roth, 2003. "Unraveling Reduces Mobility in a Labor Market: Gastroenterology with and without a Centralized Match," Levine's Working Paper Archive 506439000000000428, David K. Levine.
  3. Yan Chen & Tayfun Sönmez, 2004. "School Choice: An Experimental Study," Boston College Working Papers in Economics 622, Boston College Department of Economics.
  4. M. Utku Ünver, 2005. "On the survival of some unstable two-sided matching mechanisms," International Journal of Game Theory, Springer, vol. 33(2), pages 239-254, 06.
  5. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  6. Caterina Calsamiglia & Guillaume Haeringer & Flip Klijn, 2008. "Constrained School Choice: An Experimental Study," UFAE and IAE Working Papers 757.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  7. Muriel Niederle & Alvin E. Roth, 2001. "Unraveling Reduces the Scope of an Entry Level Labor Market: Gastroenterology With and Without a Centralized Match," NBER Working Papers 8616, National Bureau of Economic Research, Inc.
  8. Elliott Peranson & Alvin E. Roth, 1999. "The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design," American Economic Review, American Economic Association, vol. 89(4), pages 748-780, September.
  9. Haruvy, Ernan & Utku Unver, M., 2007. "Equilibrium selection and the role of information in repeated matching markets," Economics Letters, Elsevier, vol. 94(2), pages 284-289, February.
  10. Abhijit Banerjee & Esther Duflo & Maitreesh Ghatak & Jeanne Lafortune, 2013. "Marry for What? Caste and Mate Selection in Modern India," American Economic Journal: Microeconomics, American Economic Association, vol. 5(2), pages 33-72, May.
  11. Soohyung Lee, 2008. "Preferences and Choice Constraints in Marital Sorting: Evidence From Korea," Discussion Papers 07-042, Stanford Institute for Economic Policy Research.
  12. Ettore Damiano & Hao Li & Wing Suen, 2005. "Unravelling of Dynamic Sorting," Review of Economic Studies, Oxford University Press, vol. 72(4), pages 1057-1076.
  13. Alvin E Roth & Richard A Posner & Christine Jolls & Christopher Avery, 2007. "The New Market for Federal Judicial Law Clerks," Levine's Bibliography 843644000000000288, UCLA Department of Economics.
  14. Roth, Alvin & Niederle, Muriel, 2005. "The Gastroenterology Fellowship Market: Should There Be A Match?," Scholarly Articles 2562766, Harvard University Department of Economics.
  15. Li, Hao & Rosen, Sherwin, 1998. "Unraveling in Matching Markets," American Economic Review, American Economic Association, vol. 88(3), pages 371-87, June.
  16. Hanna W. Halaburda, 2008. "Unravelling in Two-Sided Matching Markets and Similarity of Preferences," Harvard Business School Working Papers 09-068, Harvard Business School.
  17. Muriel Niederle & Alvin E. Roth, 2004. "Market Culture: How Norms Governing Exploding Offers Affect Market Performance," Levine's Bibliography 122247000000000207, UCLA Department of Economics.
  18. M. Utku Unver, 1999. "Backward Unraveling over Time: The Evolution of Strategic Behavior in the Entry-Level British Medical Labor Markets," Game Theory and Information 9907001, EconWPA, revised 16 Jul 1999.
  19. Joana Pais & Ágnes Pintér, 2006. "School Choice and Information An Experimental Study on Matching Mechanisms," Working Papers Department of Economics 2006/14, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  20. Ernan Haruvy & Alvin E. Roth & M. Utku Unver, 2004. "The Dynamics of Law Clerk Matching: An Experimental and Computational Investigation of Proposals for Reform of the Market," Experimental 0404001, EconWPA.
  21. Gunter J. Hitsch & Ali Horta�su & Dan Ariely, 2010. "Matching and Sorting in Online Dating," American Economic Review, American Economic Association, vol. 100(1), pages 130-63, March.
  22. C. Nicholas McKinney & Muriel Niederle & Alvin E. Roth, 2005. "The Collapse of a Medical Labor Clearinghouse (and Why Such Failures Are Rare)," American Economic Review, American Economic Association, vol. 95(3), pages 878-889, June.
  23. Ettore Damiano & Hao Li, 2004. "Unraveling of Dynamic Sorting," Econometric Society 2004 Latin American Meetings 72, Econometric Society.
  24. Posner, Richard A. & Avery, Christopher & Jolls, Christine & Roth, Alvin, 2001. "The Market for Federal Judicial Law Clerks," Scholarly Articles 2623748, Harvard University Department of Economics.
  25. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882, April.
  26. Ockenfels, Axel & Roth, Alvin E., 2006. "Late and multiple bidding in second price Internet auctions: Theory and evidence concerning different rules for ending an auction," Games and Economic Behavior, Elsevier, vol. 55(2), pages 297-320, May.
  27. Hao Li & Wing Suen, 2000. "Risk Sharing, Sorting, and Early Contracting," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1058-1087, October.
  28. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September.
  29. Muriel Niederle & Alvin E. Roth, 2007. "The Effects of a Centralized Clearinghouse on Job Placement, Wages, and Hiring Practices," NBER Working Papers 13529, National Bureau of Economic Research, Inc.
  30. Fainmesser, Itay P., 2013. "Social networks and unraveling in labor markets," Journal of Economic Theory, Elsevier, vol. 148(1), pages 64-103.
  31. Hao Li & Wing Suen, 2004. "Self-Fulfilling Early-Contracting Rush," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(1), pages 301-324, 02.
  32. Alistair Wilson & Federico Echenique & Leeat Yariv, 2009. "Clearinghouses for Two-Sided Matching: An Experimental Study," Working Papers 487, University of Pittsburgh, Department of Economics, revised Dec 2013.
  33. Niederle, Muriel & Roth, Alvin E., 2009. "Market Culture: How Rules Governing Exploding Offers Affect Market Performance," Scholarly Articles 11077571, Harvard University Department of Economics.
  34. Roth, Alvin E & Xing, Xiaolin, 1994. "Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions," American Economic Review, American Economic Association, vol. 84(4), pages 992-1044, September.
  35. John H. Kagel & Alvin E. Roth, 2000. "The Dynamics Of Reorganization In Matching Markets: A Laboratory Experiment Motivated By A Natural Experiment," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 201-235, February.
  36. Roth, Alvin E, 1991. "A Natural Experiment in the Organization of Entry-Level Labor Markets: Regional Markets for New Physicians and Surgeons in the United Kingdom," American Economic Review, American Economic Association, vol. 81(3), pages 415-40, June.
  37. Sonmez, Tayfun, 1999. "Can Pre-arranged Matches Be Avoided in Two-Sided Matching Markets?," Journal of Economic Theory, Elsevier, vol. 86(1), pages 148-156, May.
  38. Roth, Alvin E & Xing, Xiaolin, 1997. "Turnaround Time and Bottlenecks in Market Clearing: Decentralized Matching in the Market for Clinical Psychologists," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 284-329, April.
  39. Roth, Alvin E, 1984. "The Evolution of the Labor Market for Medical Interns and Residents: A Case Study in Game Theory," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 991-1016, December.
  40. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-26, December.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The Economic Logic of Anonymity and Pseudonymity
    by Al Roth in Market Design on 2009-06-12 07:22:00
  2. When matching markets go crazy
    by Economic Logician in Economic Logic on 2009-06-09 08:34:00

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