2010 Reports

Matching with Trade-offs: Preferences over Competing Characteristics

Galichon, Alfred; Salanie, Bernard

We investigate in this paper the theory and econometrics of optimal matchings with competing criteria. The surplus from a marriage match, for instance, may depend both on the incomes and on the educations of the partners, as well as on characteristics that the analyst does not observe. The social optimum must therefore trade off matching on incomes and matching on educations. Given a flexible specification of the surplus function, we characterize under mild assumptions the properties of the set of feasible matchings and of the socially optimal matching. Then we show how data on the covariation of the types of the partners in observed matches can be used to estimate the parameters that define social preferences over matches. We provide both nonparametric and parametric procedures that are very easy to use in applications.