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Peer Effects and Stability in Matching Markets

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Algorithmic Game Theory (SAGT 2011)

Part of the book series: Lecture Notes in Computer Science ((LNISA,volume 6982))

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Abstract

Many-to-one matching markets exist in numerous different forms, such as college admissions, matching medical interns to hospitals for residencies, assigning housing to college students, and the classic firms and workers market. In all these markets, externalities such as complementarities and peer effects severely complicate the preference ordering of each agent. Further, research has shown that externalities lead to serious problems for market stability and for developing efficient algorithms to find stable matchings. In this paper we make the observation that peer effects are often the result of underlying social connections, and we explore a formulation of the many-to-one matching market where peer effects are derived from an underlying social network. The key feature of our model is that it captures peer effects and complementarities using utility functions, rather than traditional preference ordering. With this model and considering a weaker notion of stability, namely two-sided exchange stability, we prove that stable matchings always exist and characterize the set of stable matchings in terms of social welfare. To characterize the efficiency of matching markets with externalities, we provide general bounds on how far the welfare of the worst-case stable matching can be from the welfare of the optimal matching, and find that the structure of the social network (e.g. how well clustered the network is) plays a large role.

This work was supported in part by the National Science Foundation under grants CCF-0729203, CNS-0932428 and CCF-1018927, by the Office of Naval Research under the MURI grant N00014-08-1-0747, and by Caltech’s Lee Center for Advanced Networking.

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Authors and Affiliations

  1. California Institute of Technology, Pasadena, CA, 91125, USA

    Elizabeth Bodine-Baron, Christina Lee, Anthony Chong, Babak Hassibi & Adam Wierman

Authors
  1. Elizabeth Bodine-Baron
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  2. Christina Lee
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  3. Anthony Chong
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  4. Babak Hassibi
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  5. Adam Wierman
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Editor information

Editors and Affiliations

  1. Dipartimento di Informatica ed Applicazioni Università di Salerno, 84084, Fisciano, SA, Italy

    Giuseppe Persiano

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Bodine-Baron, E., Lee, C., Chong, A., Hassibi, B., Wierman, A. (2011). Peer Effects and Stability in Matching Markets. In: Persiano, G. (eds) Algorithmic Game Theory. SAGT 2011. Lecture Notes in Computer Science, vol 6982. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-24829-0_12

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  • DOI: https://doi.org/10.1007/978-3-642-24829-0_12

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-24828-3

  • Online ISBN: 978-3-642-24829-0

  • eBook Packages: Computer ScienceComputer Science (R0)

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