Matching with Contracts
John William Hatfield, Paul R. Milgrom
American Economic Review · 2005 · Volume 95 · Issue 4
Abstract
We develop a model of matching with contracts which incorporates, as special cases, the college admissions problem, the Kelso-Crawford labor market matching model, and ascending package auctions. We introduce a new "law of aggregate demand" for the case of discrete heterogeneous workers and show that, when workers are substitutes, this law is satisfied by profit-maximizing firms. When workers are substitutes and the law is satisfied, truthful reporting is a dominant strategy for workers in a worker-offering auction/matching algorithm. We also parameterize a large class of preferences satisfying the two conditions.
Keywords
Bargaining Theory, Matching Theory, Labor Contracts
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