Working Paper: CEPR ID: DP16228
Authors: Alfred Galichon; Bernard Salani
Abstract: We investigate a model of one-to-one matching with transferable utility and general unobserved heterogeneity. Under a separability assumption that generalizes Choo and Siow (2006), we first show that the equilibrium matching maximizes a social gain function that trades off exploiting complementarities in observable characteristics and matching on unobserved characteristics. We use this result to derive simple closed-form formulae that identify the joint matching surplus and the equilibrium utilities of all participants, given any known distribution of unobserved heterogeneity. We provide efficient algorithms to compute the stable matching and to estimate parametric versions of the model. Finally, we revisit Choo and Siow’s empirical application to illustrate the potential of our more general approach.
Keywords: matching; marriage; assignment; hedonic prices
JEL Codes: C78; D61; C13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| equilibrium matching (C78) | social surplus (D69) |
| matching surplus (C78) | observed matching patterns (C52) |
| unobserved heterogeneity (C21) | matching process (C78) |
| observable characteristics (C90) | equilibrium utilities (D59) |
| unobserved characteristics (D80) | equilibrium utilities (D59) |
| equilibrium matching (C78) | matching patterns (C52) |