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Matching with Contracts

John William Hatfield and Paul R. Milgrom
The American Economic Review
Vol. 95, No. 4 (Sep., 2005), pp. 913-935
Stable URL: http://www.jstor.org/stable/4132699
Page Count: 23
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Matching with Contracts
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Abstract

We develop a model of matching with contracts which incorporates, as special cases, the college admissions problem, the Kelso-Crawford labor market matching model, and ascending package auctions. We introduce a new "law of aggregate demand" for the case of discrete heterogeneous workers and show that, when workers are substitutes, this law is satisfied by profit-maximizing firms. When workers are substitutes and the law is satisfied, truthful reporting is a dominant strategy for workers in a worker-offering auction/matching algorithm. We also parameterize a large class of preferences satisfying the two conditions.

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