Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2015:32: Compromises and Rewards: Stable and Non-manipulable Probabilistic Matching

Jens Gudmundsson ()
Additional contact information
Jens Gudmundsson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: Can we reconcile stability with non-manipulability in two-sided matching problems by selecting lotteries over matchings? We parameterize, through sets of utility functions, how ordinal preferences induce preferences over lotteries and develop corresponding notions of ex-ante stability and non-manipulability. For most sets, the properties are incompatible. However, for the set of utility functions with increasing differences, stability and non-manipulability characterize Compromises and Rewards. This novel rule is fundamentally different from the one that has attracted most attention in the literature, Deferred Acceptance. We then derive complementary negative results that show that increasing differences essentially is a necessary condition for the properties to be compatible.

Keywords: Pairing; Lottery; Stability; Non-manipulability; Compromises; Rewards

JEL-codes: C62; C78; D02; D60

23 pages, First version: October 26, 2015. Revised: October 19, 2017.

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