Stability and efficiency in decentralized two-sided markets with weak preferences

Arbeitspapier

Many decentralized markets are able to attain a stable outcome despite the absence of a central authority (Roth and Vande Vate, 1990). A stable matching, however, need not be efficient if preferences are weak. This raises the question whether a decentralized market with weak preferences can attain Pareto efficiency in the absence of a central matchmaker. I show that when agent tastes are independent, the random stable match in a large-enough market is asymptotically Pareto efficient even with weak preferences. In fact, even moderate-sized markets can attain good efficiency levels. The average fraction of agents who can Pareto improve is below 10% in a market of size n = 79 when one side of the market has weak preferences; when both sides have weak preferences, the inefficiency falls below 10% for n > 158. This implies that approximate Pareto efficiency is attainable in a decentralized market even in the absence of a central matchmaker.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Canada Staff Working Paper ; No. 2017-4

Classification and Topics

• Classification: Wirtschaft ; Bargaining Theory; Matching Theory ; Allocative Efficiency; Cost-Benefit Analysis
• Subject: Economic models

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Raykov, Radoslav S.
• Event: Veröffentlichung
• (who): Bank of Canada
• (where): Ottawa
• (when): 2017

Further information

• DOI: doi:10.34989/swp-2017-4
• Handle: http://hdl.handle.net/10419/171958
• Last update: 10.03.2025, 11:43 AM CET