Assignment Games with Externalities

Gudmundsson, Jens and Habis, Helga (2015) Assignment Games with Externalities. Working Paper. Corvinus University of Budapest Faculty of Economics.

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We examine assignment games, wherematched pairs of firms and workers create some monetary value to distribute among themselves and the agents aim to maximize their payoff. In the majority of this literature, externalities - in the sense that a pair’s value depends on the pairing of the others - have been neglected. However, inmost applications a firm’s success depends on, say, the success of its rivals and suppliers. Thus, it is natural to ask how the classical results on assignment games are affected by the introduction of externalities? The answer is – dramatically. We find that (i) a problem may have no stable outcome, (ii) stable outcomes can be inefficient (not maximize total value), (iii) efficient outcomes can be unstable, and (iv) the set of stable outcomes may not form a lattice. We show that stable outcomes always exist if agents are "pessimistic." This is a knife-edge result: there are problems in which the slightest optimism by a single pair erases all stable outcomes.

Item Type:Monograph (Working Paper)
Series Name:Corvinus Economics Working Papers - CEWP
Series Number / Identification Number:2015/16
Uncontrolled Keywords:two-sided matching, assignment game, externalities, stability, efficiency
JEL classification:C71 - Cooperative Games
C78 - Bargaining Theory; Matching Theory
D62 - Externalities
Divisions:Faculty of Economics > Department of Microeconomics
Mathematics, Econometrics
Funders:Jan Wallander and Tom Hedelius Foundation
Projects:OTKA K 112266
ID Code:2063
Deposited By: Ádám Hoffmann
Deposited On:18 Sep 2015 07:04
Last Modified:18 Sep 2015 07:04

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