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Decentralized Matching Markets with Endogenous Salaries

  • Hideo Konishi

    ()

    (Boston College)

  • Margarita Sapozhnikov

    (Boston College)

In a Shapley-Shubik assignment problem with a supermodular output matrix, we consider games in which each firm makes a take-it-or-leave-it salary offer to one applicant, and a match is made only when the offer is accepted by her. We consider both one-shot and multistage games. In either game, we show that there can be many equilibrium salary vectors which are higher or lower than the minimal competitive salary vector. If we exclude artificial equilibria, applicants' equilibrium salary vectors are bounded above by the minimal competitive salary vector, while firms' equilibrium payoff vectors are bounded below by the payoff vector under the minimal competitive salary vector. This suggests that adopting the minimal competitive salary vector as the equilibrium outcome in decentralized markets does not have a strong justification.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 654.

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Length: 36 pages
Date of creation: 10 Nov 2006
Date of revision: 03 Jan 2008
Publication status: published, Games and Economic Behavior, 2008, 64:193-218.
Handle: RePEc:boc:bocoec:654
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