Journal article

Exploding offers and unraveling in two-sided matching markets

S Pan

International Journal of Game Theory | Springer Verlag | Published : 2018


Many two-sided matching markets tend to unravel in time with transactions becoming inefficiently early. In a two-period decentralized model, this paper shows that when a market culture allows firms to make exploding offers, unraveling is more likely to occur and lead to a less socially desirable matching outcome. A market with a larger uncertainty in early stages is not necessarily more vulnerable to the presence of exploding offers: the conclusion depends on the specific information structure. A market tends to be less vulnerable to exploding offers when there is an excess supply of labor. While a banning policy on exploding offers tends to be supported by high quality firms and workers, it..

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University of Melbourne Researchers