Cupid’s Invisible Hand: Social Surplus and Identification in Matching Models

Alfred Galichon, Bernard Salanié

    Research output: Contribution to journalArticlepeer-review

    Abstract

    We investigate a model of one-to-one matching with transferable utility and general unobserved heterogeneity. Under a separability assumption that generalizes Choo and Siow (2006, Journal of Political Economy, 114, 175–201), we first show that the equilibrium matching maximizes a social gain function that trades off exploiting complementarities in observable characteristics and matching on unobserved characteristics. We use this result to derive simple closed-form formulae that identify the joint matching surplus and the equilibrium utilities of all participants, given any known distribution of unobserved heterogeneity. We provide efficient algorithms to compute the stable matching and to estimate parametric versions of the model. Finally, we revisit Choo and Siow’s empirical application to illustrate the potential of our more general approach.

    Original languageEnglish (US)
    Pages (from-to)2600-2629
    Number of pages30
    JournalReview of Economic Studies
    Volume89
    Issue number5
    DOIs
    StatePublished - Oct 1 2022

    Keywords

    • Assignment
    • Hedonic prices
    • Marriage
    • Matching

    ASJC Scopus subject areas

    • Economics and Econometrics

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