Economics Job Candidate Seminar

Abstract

I study dynamic matching markets where matching opportunities arrive over time, matching is one-to-one and irreversible. The proposed stability notion, dynamic stability, incorporates a backward induction notion to an otherwise cooperative model, which takes into account the time at which the arriving agents can form binding agreements. Dynamically stable matchings may fail to exist in two-sided economies (e.g., adoption markets), and in the allocation of objects with priorities (e.g., public housing). However, dynamically stable matchings always exist in one-sided economies (e.g., deceased-donor organ allocation). The non-existence result reveals a new form of unraveling in matching markets: agents wish to delay the time at which they are matched so as to improve their matching prospects. These findings rationalize why clearing houses in different markets adopt very different rules to deal with the event in which agents reject a current offer to wait for a better match. In particular, in two-sided markets and in the allocation of objects with priorities, the central clearing house needs to restrict agents' option to wait for a better match to guarantee efficiency is achieved.