Individual Rationality Conditions of Identifying Matching Costs in Transferable Utility Matching Games

TL;DR

This paper investigates how individual rationality conditions and penalty terms can be used to identify matching costs in transferable utility matching games, enhancing the understanding of market matching behaviors.

Contribution

It demonstrates that combining unmatched agents, transfers, and rationality conditions with large penalties enables identification of matching costs in the model.

Findings

Identification of matching costs is possible with large penalty terms.

Combining unmatched agents and transfers improves estimation accuracy.

The method extends existing maximum score estimation techniques.

Abstract

As the widely applied method for measuring matching assortativeness in a transferable utility matching game, a matching maximum score estimation is proposed by \cite{fox2010qe}. This article reveals that combining unmatched agents, transfers, and individual rationality conditions with sufficiently large penalty terms makes it possible to identify the coefficient parameter of a single common constant, i.e., matching costs in the market.