Economics of Matching

Catalog description

There are many resource allocations that are not unilateral decisions but instead require approval from two sides of the market. This course provides the theoretical constructs for the analysis of matching in market environments. Following a review of game theory, the course develops the theory of matching. The topic at large is introduced by the seminal paper in matching "College Admissions and the Stability of Marriage" by Gale and Shapley. Other peer-reviewed literature on the topic will be discussed. Topics that follow include economic applications in the areas of employment, marriage, college admissions, human organ donations, medical residents, and other current topics. Within each of these topics, analysis is performed to study the following questions: 1) What are the preferences and incentives of all of the market participants involved in the matching market? 2) What was the method in which matching occurred? 3) Is this end result Pareto efficient and stable? 4) If the result isn't Pareto efficient, could another method or algorithm be used to improve efficiency? 5) Does the efficient outcome yield equal (or near equal) gains to all market participants involved, or is there a large discrepancy in the utility of the participants post-matching? For example, in a marriage matching algorithm, do women end up much happier than men? In medical residencies, do hospitals end up with larger gains than the doctors? Within certain topics, specific models are also discussed, including the Beveridge curve, Cobb-Douglas matching functions, labor market frictions, Nash bargaining games, feasibility sets, disagreement points, egalitarian and non-egalitarian bargaining solutions, and risk aversion. This course is an applied economics course with relevance to the areas of microeconomics, macroeconomics, and labor economics. The course objective is for students to learn the analytical methods for understanding the economics of matching. Students will develop skills in applying matching models and analysis to practical situations. The course will count toward both the major and minor in economics.