Assignment games with externalities revisited

Gudmundsson, Jens and Habis, Helga (2017) Assignment games with externalities revisited. Economic Theory Bulletin, 5 (2). pp. 247-257. DOI

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We study assignment games with externalities. The value that a firm and a worker create depends on the matching of the other firms and workers. We ask how the classical results on assignment games are affected by the presence of externalities. The answer is that they change dramatically. Though stable outcomes exist if agents are “pessimistic”, this is a knife-edge result: we show that there are problems in which the slightest optimism by a single pair erases all stable outcomes. If agents are sufficiently optimistic, then there need not exist stable outcomes even if externalities are vanishingly small. The negative result persists also when we impose a very restrictive structure on the values and the externalities. Furthermore, stability and efficiency no longer go hand in hand and the set of stable outcomes need not form a lattice with respect to the agents’ payoffs.

Item Type:Article
Uncontrolled Keywords:two-sided matching, assignment games, externalities, stability
JEL classification:C71 - Cooperative Games
C78 - Bargaining Theory; Matching Theory
D62 - Externalities
ID Code:6067
Deposited By: MTMT SWORD
Deposited On:11 Nov 2020 15:31
Last Modified:11 Nov 2020 15:31

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