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Matching Markets

Paper Session

Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)

Hilton Riverside, Cambridge
Hosted By: Econometric Society
  • Chair: Bertan Turhan, Iowa State University

Open-Ended Matching with and without Markets

Sophie Bade
,
University of London
Michael Mandler
,
University of London

Abstract

Suppose agents are to be matched to objects and arrive over time without a definite terminal date. Although the set of core matchings can then be empty, an extended version of the top trading cycles algorithm shows that a Pareto-optimal weak-core matching always exists. Optimal matchings face a difficulty however: some of the agents linked by chains of trades may have lifespans that do not overlap, thus obstructing their trades. To address this problem, we let matchings be implemented via competitive markets. Competitive equilibria always exist and any matching in the core can be competitively implemented. Moreover full core equivalence, where allocations are in the core iff they can be competitively implemented, holds for a dense set of models. The extended algorithm also yields a strategyproof mechanism, comparably to the finite model.

How to De-reeserve Reserves: Admissions to Technical Colleges in India

Bertan Turhan
,
Iowa State University

Abstract

We study the joint implementation of reservation and de-reservation policies in India that has been enforcing comprehensive affirmative action since 1950. The landmark judgment of the Supreme Court of India in 2008 mandated that whenever the OBC category (with 27 percent reservation) has unfilled positions, they must be reverted to general category applicants in admissions to public schools without specifying how to implement it. We disclose the drawbacks of the recently reformed allocation procedure in admissions to technical colleges and offer a solution through 'de-reservation via choice rules.' We propose a novel priority design—Backward Transfers (BT) choice rule—for institutions and the deferred acceptance mechanism under these choice rules (DA-BT) for centralized clearinghouses. We show that DA-BT corrects the shortcomings of existing mechanisms. By formulating India's legal requirements and policy goals as formal axioms, we show that the DA-BT mechanism is unique for the concurrent implementation of reservation and de-reservation policies.

The Property Rights Theory of Production Networks

Ivan Balbuzanov
,
University of Melbourne
Maciej H. Kotowski
,
University of Notre Dame

Abstract

This paper investigates the formation of production and trading networks in economies with general interdependencies and complex property rights. We argue that the right to exclude, a core tenet of property, grants asset owners local monopoly power that is amplified by an economy’s endogenous production network. Our analysis generalizes the exclusion core, a cooperative solution concept based on the right to exclude, to markets with production. We identify sufficient (and essentially necessary) conditions for the nonemptiness of the exclusion core. Multisourcing and a bias toward shorter supply chains emerge in exclusion-core outcomes. As a methodological contribution, we generalize the top trading cycles algorithm to a production economy and we show that it identifies outcomes in an economy’s exclusion core. The framework is applied to the study of vertical integration and government intervention in supply chains.

Inventory, Market Making, and Liquidity: Theory and Application to the Corporate Bond Market

Assa Cohen
,
University of Pennsylvania
Mahyar Kargar
,
University of Illinois-Urbana-Champaign
Benjamin R. Lester
,
Federal Reserve Bank of Philadelphia
Pierre-Olivier Weill
,
University of California-Los Angeles

Abstract

We develop a search-theoretic model of over-the-counter markets in which customers with
arbitrary preferences and asset holdings trade through dealers. Importantly, we assume that
when a customer and a dealer meet, dealers can only sell assets that they already own. Within
this environment, we derive the equilibrium relationship between dealers’ cost of holding
assets as inventory and various measures of liquidity, including dealers’ inventory holdings (or
“capital commitment”), bid-ask spreads, trade size, volume, and turnover. Using transaction-level
data from the corporate bond market, we calibrate the model to quantitatively assess the
impact of post-crisis regulations on dealers’ inventory costs, liquidity, and welfare. We also
exploit our structural framework to study the effects of other developments in the corporate
bond market, including entry by non-regulated banks, the rise of electronic trading platforms,
and the shift towards passive investment vehicles.
JEL Classifications
  • C78 - Bargaining Theory; Matching Theory
  • D47 - Market Design