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Assignment Games with Externalities

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Abstract

We introduce externalities into a two-sided, one-to-one assignment game by letting the values generated by pairs depend on the behavior of the other agents. Extending the notion of blocking to this setup is not straightforward; a pair has to take into account the possible reaction of the residual agents to be able to assess the value it could achieve. We define blocking in a rather general way that allows for many behavioral considerations or beliefs. The main result of the paper is that a stable outcome in an assignment game with externalities always exists if and only if all pairs are pessimistic regarding the others' reaction following a deviation. The relationship of stability and optimality is also discussed, as is the structure of the set of stable outcomes.

Suggested Citation

  • Gudmundsson, Jens & Habis, Helga, 2013. "Assignment Games with Externalities," Working Papers 2013:27, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:2013_027
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    File URL: http://project.nek.lu.se/publications/workpap/papers/WP13_27.pdf
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    1. Sasaki, Hiroo & Toda, Manabu, 1996. "Two-Sided Matching Problems with Externalities," Journal of Economic Theory, Elsevier, vol. 70(1), pages 93-108, July.
    2. Li, S., 1993. "Compititive Matching Equilibrium and Multiple Principal- Agent Models," Papers 267, Minnesota - Center for Economic Research.
    3. László Kóczy, 2007. "A recursive core for partition function form games," Theory and Decision, Springer, vol. 63(1), pages 41-51, August.
    4. Kimmo Eriksson & Fredrik Jansson & Thomas Vetander, 2011. "The Assignment Game With Negative Externalities And Bounded Rationality," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 13(04), pages 443-459.
    5. Yukihiko Funaki & Takehiko Yamato, 1999. "The core of an economy with a common pool resource: A partition function form approach," International Journal of Game Theory, Springer;Game Theory Society, vol. 28(2), pages 157-171.
    6. Ismail Saglam & Ayse Mumcu, 2007. "The core of a housing market with externalities," Economics Bulletin, AccessEcon, vol. 3(57), pages 1-5.
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    Cited by:

    1. Chen, Bo, 2013. "Assignment Games with Externalities And Matching-Based Cournot Competition," Bonn Econ Discussion Papers 08/2013, University of Bonn, Bonn Graduate School of Economics (BGSE).
    2. Jens Gudmundsson, 2014. "Sequences in Pairing Problems: A new approach to reconcile stability with strategy-proofness for elementary matching problems," 2014 Papers pgu351, Job Market Papers.
    3. 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 game; 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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