TY - JOUR
T1 - Coarse matching with incomplete information
AU - Hoppe, Heidrun C.
AU - Moldovanu, Benny
AU - Ozdenoren, Emre
N1 - Funding Information:
We wish to thank three anonymous referees for excellent comments on an earlier version. Financial support of the German Science Foundation through SFB 15-TR is gratefully acknowledged.
PY - 2011/5
Y1 - 2011/5
N2 - We study two-sided markets with heterogeneous, privately informed agents who gain from being matched with better partners from the other side. Our main results quantify the relative attractiveness of a coarse matching scheme consisting of two classes of agents on each side, in terms of matching surplus (output), an intermediary's revenue, and the agents' welfare (defined as the total surplus minus payments to the intermediary). Following Chao and Wilson (Am Econ Rev 77: 899-916, 1987) and McAfee (Econometrica 70:2025-2034, 2002), our philosophy is that, if the worst-case scenario under coarse matching is not too bad relative to what is achievable by more complex, finer schemes, a coarse matching scheme will turn out to be preferable once the various transaction costs associated with fine schemes are taken into account. Similarly, coarse matching schemes can be significantly better than random matching, while still requiring only a minimal amount of information.
AB - We study two-sided markets with heterogeneous, privately informed agents who gain from being matched with better partners from the other side. Our main results quantify the relative attractiveness of a coarse matching scheme consisting of two classes of agents on each side, in terms of matching surplus (output), an intermediary's revenue, and the agents' welfare (defined as the total surplus minus payments to the intermediary). Following Chao and Wilson (Am Econ Rev 77: 899-916, 1987) and McAfee (Econometrica 70:2025-2034, 2002), our philosophy is that, if the worst-case scenario under coarse matching is not too bad relative to what is achievable by more complex, finer schemes, a coarse matching scheme will turn out to be preferable once the various transaction costs associated with fine schemes are taken into account. Similarly, coarse matching schemes can be significantly better than random matching, while still requiring only a minimal amount of information.
KW - Coarse matching
KW - Incomplete information
UR - http://www.scopus.com/inward/record.url?scp=79954627945&partnerID=8YFLogxK
U2 - 10.1007/s00199-009-0514-5
DO - 10.1007/s00199-009-0514-5
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AN - SCOPUS:79954627945
SN - 0938-2259
VL - 47
SP - 75
EP - 104
JO - Economic Theory
JF - Economic Theory
IS - 1
ER -