Optimal Dynamic Matching

We study a dynamic matching environment where individuals arrive sequentially. There is a tradeoff between waiting for a thicker market, allowing for higher quality matches, and minimizing agents’waiting costs. The optimal mechanism cumulates a stock of incongruent pairs up to a threshold and matches all others in an assortative fashion instantaneously. In decentralized settings, a similar protocol ensues in equilibrium, but expected queues are ineffi ciently long. We quantify the welfare gain from centralization, which can be substantial, even for low waiting costs. We also evaluate welfare improvements generated by transfer schemes and by matching individuals in fixed time intervals.