Exploding offers and unraveling in two-sided matching markets

Exploding offers and unraveling in two-sided matching markets Many two-sided matching markets tend to unravel in time with transactions becoming inefficiently early. In a two-period decentralized model, this paper shows that when a market culture allows firms to make exploding offers, unraveling is more likely to occur and lead to a less socially desirable matching outcome. A market with a larger uncertainty in early stages is not necessarily more vulnerable to the presence of exploding offers: the conclusion depends on the specific information structure. A market tends to be less vulnerable to exploding offers when there is an excess supply of labor. While a banning policy on exploding offers tends to be supported by high quality firms and workers, it can be opposed by those of low qualities. This explains the prevalence of exploding offers in practice. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Game Theory Springer Journals

Exploding offers and unraveling in two-sided matching markets

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Publisher
Springer Berlin Heidelberg
Copyright
Copyright © 2017 by Springer-Verlag GmbH Germany
Subject
Economics; Economic Theory/Quantitative Economics/Mathematical Methods; Game Theory, Economics, Social and Behav. Sciences; Behavioral/Experimental Economics; Operations Research/Decision Theory
ISSN
0020-7276
eISSN
1432-1270
D.O.I.
10.1007/s00182-017-0593-7
Publisher site
See Article on Publisher Site

Abstract

Many two-sided matching markets tend to unravel in time with transactions becoming inefficiently early. In a two-period decentralized model, this paper shows that when a market culture allows firms to make exploding offers, unraveling is more likely to occur and lead to a less socially desirable matching outcome. A market with a larger uncertainty in early stages is not necessarily more vulnerable to the presence of exploding offers: the conclusion depends on the specific information structure. A market tends to be less vulnerable to exploding offers when there is an excess supply of labor. While a banning policy on exploding offers tends to be supported by high quality firms and workers, it can be opposed by those of low qualities. This explains the prevalence of exploding offers in practice.

Journal

International Journal of Game TheorySpringer Journals

Published: Sep 11, 2017

References

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