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  1. Home
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  3. American Economic Review
  4. September 2005
  5. Matching with Contracts

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Matching with Contracts

  • John William Hatfield
  • Paul R. Milgrom
American Economic Review
vol. 95, no. 4, September 2005
(pp. 913–935)
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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.

Citation

Hatfield, John William, and Paul R. Milgrom. 2005. "Matching with Contracts." American Economic Review 95 (4): 913–935. DOI: 10.1257/0002828054825466

JEL Classification

  • C78 Bargaining Theory; Matching Theory
  • J41 Labor Contracts