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The University of Southampton
EconomicsPart of Economic, Social and Political Science

1411 Surplus Efficiency of Ex Ante Investments in Matching Markets (T. Gall)

Author: Thomas Gall (University of Southampton)

Paper number 1411

Does a competitive equilibrium in a matching market provide adequate incentives for investments made before the market when utility is not perfectly transferable? This paper derives a necessary and sufficient condition for equilibrium investments to maximize surplus conditional on the matching assignment in a one-sided market. Surplus efficiency of equilibrium payoffs ex post alone is sufficient for surplus efficient investments only when the equal treatment property holds in
equilibrium. Sufficient (but not full) utility transferability in a well defined sense ensures this will hold and that a social planner who can only change investments cannot achieve higher aggregate surplus than
the market.

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