DP2396 Monotone Matching In Perfect And Imperfect Worlds

Author(s): Patrick Legros, Andrew Newman
Publication Date: March 2000
Keyword(s): Assortative Matching, Contracts, Imperfect Markets, Organizations
JEL(s): D30, D51, L10, L22, L23
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2396

We study frictionless matching models in large production economies with and without market imperfections and/or incentive problems. We provide necessary and sufficient distribution-free conditions for monotone matching which depend on the relationship between what we call the segregation payoff - a generalization of the individually rational payoff - and the feasible set for a pair of types. Imperfections have two distinct effects that are relevant for equilibrium matching patterns: they can overwhelm the complementarity properties of the production technology and they can introduce nontransferabilities that make equilibrium matching inefficient. We also use our framework to reveal the source of differences in the comparative static properties of some models in the literature and to explore the effects of distribution on the equilibrium matching pattern.