Coarse matching with incomplete information

Heidrun C. Hoppe, Benny Moldovanu, Emre Ozdenoren

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish
Pages (from-to)75-104
Number of pages30
JournalEconomic Theory
Volume47
Issue number1
DOIs
StatePublished - May 2011
Externally publishedYes

Keywords

  • Coarse matching
  • Incomplete information

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