Two-sided heterogeneity, endogenous sharing, and international matching markets

Abstract

This paper develops a multi-country, multi-sector, and multi-factor model of two-sided matching between heterogeneous workers and entrepreneurs in which agents in different countries can form crosscountry teams. Sorting, matching, and sharing problems are all considered in a unified framework. Equilibrium is characterized by endogenous sharing rules, which break away from competitive marginal productivity theories of factor returns. I illustrate that a reduction in the cost of sector-specific matching can increase welfare for all agents without conflicts of interest, and that a bilateral economic integration agreement can affect the welfare of agents in an unrelated third country. Furthermore, I demonstrate that rising income inequality can be accompanied by strengthening negative assortative matching.

Matching soulmates

“…Our paper demonstrates that IMS is a relevant property regardless of whether IMS can match all players, and even when the core is empty, as is the case in many environments studied in the literature. For instance, in a recent paper, Graziano et al (2020) study housing market scenarios where the core may be empty, Liu (2019) studies the potential emptiness of the core in matching problems with participation constraints, and Choi (2021) studies international matching markets between F I G U R E 2 Proportion of players matched and IMS-complete profiles by level of commonality (D) for N = 10. IMS, iterated matching of soulmates F I G U R E 3 Proportion of matched and IMS-complete profiles for by level of commonality (D) for N = 10.…”