Competitive Many-to-One Matching: Sorting vs. Equality

Abstract

We study many-to-one matching with transfers and peer effects, such as matching workers to firms, students to schools, residents to neighborhoods, or consumers to status goods. With flexible prices (as in the labor market), competitive equilibrium exists and is efficient under general conditions. We characterize when workforces are segregated by skill and matched to firms in a positively assortative manner. In general, equilibrium features alternating intervals of workforce segregation and compression (mixing). Comparative statics characterize when workforces are more segregated or more compressed, and when profits and wages are more or less unequal. With uniform prices (as in school or neighborhood choice), the value generated by peer effects accrues to schools rather than students, and equilibrium can be excessively segregated. Our model generalizes both assignment models (optimal transport) and Bayesian persuasion.