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Title: Stability and Bayesian Consistency in Two-Sided Markets
We propose a criterion of stability for two-sided markets with asymmetric information. A central idea is to formulate off-path beliefs conditional on counterfactual pairwise deviations and on-path beliefs in the absence of such deviations. A matching-belief configuration is stable if the matching is individually rational with respect to the system of on-path beliefs and is not blocked with respect to the system of off-path beliefs. The formulation provides a language for assessing matching outcomes with respect to their supporting beliefs and opens the door to further belief-based refinements. The main refinement analyzed in the paper requires the Bayesian consistency of on-path and off-path beliefs with prior beliefs. We define concepts of Bayesian efficiency, the rational expectations competitive equilibrium, and the core. Their contrast with pairwise stability manifests the role of information asymmetry in matching formation. (JEL C78, D40, D82, D83)  more » « less
Award ID(s):
1824328
PAR ID:
10282139
Author(s) / Creator(s):
Date Published:
Journal Name:
American Economic Review
Volume:
110
Issue:
8
ISSN:
0002-8282
Page Range / eLocation ID:
2625 to 2666
Format(s):
Medium: X
Sponsoring Org:
National Science Foundation
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