Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92979
Authors: 
Chen, Bo
Year of Publication: 
2013
Series/Report no.: 
Bonn Econ Discussion Papers 08/2013
Abstract: 
We develop a model of assignment games with pairwise-identitydependent externalities. A concept of conjectural equilibrium is proposed, and the universal conjecture is shown to be the necessary and sufficient condition for the general existence of equilibrium. We then apply the solution concept to a matching-based Cournot model in which the unit production cost of a firm depends on both the technology of the firm and the human capital of the manager hired, and show that if technology and human capital are complementary, the positive assortative matching (PAM) is a stable matching under rational expectations, or even if firm technology and human capital are substitutable yet the substitutive effect is dominated by the marginal effects of technology and human capital, the PAM is still a rational stable matching. However, if the substitutive effect on the unit production cost is sufficiently strong or the market demand is sufficiently high, the negative assortative matching is a rational stable matching.
Subjects: 
Cooperative Games
Two-sided Matching
Assignment Games
Externalities
Transferable Utility
Cournot Competition
JEL: 
C71
C78
D43
D47
D62
L13
Document Type: 
Working Paper

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