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Costly Concessions: An empirical framework for matching with imperfectly transferable utility

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JournalJournal of Political Economy
DateAccepted/In press - 11 Dec 2018
Original languageEnglish

Abstract

We introduce an empirical framework for models of matching with imperfectly
transferable utility and unobserved heterogeneity in tastes. Our framework allows us to characterize matching equilibrium in a flexible way that includes as special cases the classical fully- and non-transferable utility models, collective models, and settings with taxes on transfers. We allow for the introduction of a general class of additive unobserved heterogeneity on agents’ preferences. We show existence and uniqueness of an equilibrium under minimal assumptions. We then provide two algorithms to compute the equilibrium in our model. The first algorithm operates under any structure of heterogeneity in preferences; the second is more efficient, but applies only in the case in which random utilities are logit. We show that the log-likelihood of the model has a simple expression and we compute its derivatives. An empirical illustration is provided
in the appendix.

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