Matching Issues: An auction with externalities and unraveling matching markets

This dissertation examines two problems that may arise in matching problems.The first two chapters deal with auctions for multiple units where bidders exhibitexternalities. The third chapter links risk aversion and information to unraveling inlabor markets.Auctions can lead to efficient allocations in a wide class of assignment problems.In the presence of externalities, however, efficiency may no longer be guaranteed.This dissertation shows that a modification of Ausubel & Milgrom (2002)'sgeneralized ascending price auction can be used to allocate multiple items to biddersin this case. Despite the presence of externalities, the resulting auction possessesan efficient Nash equilibrium in pure strategies leading to a core allocation.Furthermore, under certain restrictions on bidder valuations, truthful revelation ofvaluations is found to a dominant strategy. The auction is augmented to includeexplicitly the auctioneer's preferences over final outcomes. Externalities affectingnon-participants can thus be accounted for straightforwardly.In Cournot game where capacity constraints are determined in an auction priorto the market interaction, the valuations for capacity in the auction will exhibit externalities.Using the generalized ascending price auction allows the bidding firms toreach a joint profit maximizing capacity allocation below the Cournot equilibriumlevel. Since this comes at the expense of consumer surplus the auctioneer may havean incentive to specify its own valuation taking into account total surplus maximization.Then, the final capacity allocation is bounded by the profit maximizingand the Cournot equilibrium level.Unraveling labor markets, that is periodic labor markets where appointmentsare made earlier and earlier often leading to a break-down of the market, have beenlinked to risk-averse workers attempting to reduce the variability of the outcome.In many cases, early contracts are used to fix a wage when the relative supply anddemand of workers in the market and hence the division of surplus is uncertain. Thischapter represents a different approach. Both workers and firms have preferencesover matchings and uncertainty is introduced through the quality of workers. Riskaverse workers or risk-loving firms are found to be necessary for early contracting.Further research strategies are suggested.