Strategic complementarities and unraveling in matching markets

Abstract

We present a theoretical explanation of inefficient early matching in matching markets. Our explanation is based on strategic complementarities and strategic unraveling. We identify a negative externality imposed on the rest of the market by agents who make early offers. As a consequence, an agent may make an early offer because she is concerned that others are making early offers. Yet other agents make early offers because they are concerned that others worry about early offers, and so on and so forth. The end result is that any given agent is more likely to make an early offer than a late offer.

Multiperiod Matching

“…When markets unravel, parties commit to relationships far in the future, often before valuable information becomes known. Uncertainty contributes to unraveling as early contracting provides insurance (Roth and Xing, ; Li and Rosen, ; Hałaburda, ; Ostrovsky and Schwarz, ; Echenique and Pereyra, ). Our model reinforces this intuition in a new way.…”

The Local Refugee Match: Aligning Refugees’ Preferences with the Capacities and Priorities of Localities

“…This sort of system would breed all sorts of perverse incentives: there might be reneging on accepted offers, early 'exploding offers' (i.e. offers with rapid expiry dates), constant re-matching, inefficient early matching, unfilled school places and so on (Mongell and Roth, 1991;Avery et al, 2007;Echenique and Pereyra, 2016). While a completely decentralized approach may work reasonably well in some circumstances (e.g.…”

Exploding offers and unraveling in two-sided matching markets

“…Besides the market characteristics discussed above, the previous literature has identied several other factors that could aect unraveling, including the stability of centralized matching algorithms (Roth, 1984(Roth, , 1991Kagel and Roth, 2000;Ünver, 2001, 2005, market congestion (Roth and Xing, 1997), similarity of preferences (Haªaburda, 2010), social network structures (Fainmesser, 2013), and strategic complementarities (Echenique and Pereyra, 2016). The motives behind unraveling are also investigated in some dierent environments.…”

“…Therefore, any match is preferable to remaining unmatched. Notice in this setting, a rm's utility from a match depends only on 3 Clearly, this is a simplifying assumption. The similarity of preferences is also a factor that can aect market unraveling.…”