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

By Alfred Galichon, Bernard Salanié. 2015

220 citations recorded by the source corpus.

We investigate a model of one-to-one matching with transferable utility when some of the characteristics of the players are unobservable to the analyst. We allow for a wide class of distributions of unobserved heterogeneity, subject only to a separability assumption that generalizes Choo and Siow (2006). We first show that the stable matching maximizes a social gain function that trades off the average surplus due to the observable characteristics and a generalized entropy term that reflects the impact of matching on unobserved characteristics. We use this result to derive simple closed-form formulae that identify the joint surplus in every possible match and the equilibrium utilities of all participants, given any known distribution of unobserved heterogeneity. If transfers are observed, then the pre-transfer utilities of both partners are also identified. We also present a very fast algorithm that computes the optimal matching for any specification of the joint surplus. We conclude by discussing some empirical approaches suggested by these results.

Subfields: Economics and Econometrics, Marketing

View Paper: https://www.semanticscholar.org/paper/0f68c3f2bdb0ecc1c9339486d357cad8edb50e80

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In Economics and Econometrics

  1. Pierre-Andre Chiappori
  2. Bernard Salanié
  3. Y. Weiss
  4. Elisabeth Honka
  5. Amy N. Finkelstein
  6. Amanda Starc
  7. Francesco Decarolis
  8. Alma Cohen

In Marketing

  1. Bernard Salanié

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