Matching through Decentralized Markets

Joint with: Leeat Yariv,

We study a simple model of a decentralized market game in which firms make directed offers to workers. We identify three components of the market game that are key in determining whether stable matches can arise as equilibrium outcomes. The first is related to the structure of preferences of agents. The second pertains to the agentsÂ’ information on preferences. The third is whether there are frictions in the market, which in this paper take the form of discounting. Out results show that complete information, or at least frictionless economies are needed for the existence of equilibrium strategies that yield the stable outcome. In the presence of uncertainty, as soon as frictions are introduced, much harsher assumptions have to be made to guarantee existence of an equilibrium that yields the stable match.

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