Two-sided Matching with Incomplete Information∗

Stability in a two-sided matching model with non-transferrable utility and with incomplete information is investigated. Each agent has interdependent preferences which depend on his own type and on the possibly unknown types of agents on the other side of the market. In a one-sided incomplete information model in which workers’ types are private information, a firm joins a worker in a block to a matching only if the firm is better off with all types of the worker interested in the potential block. With anonymous preferences, all strictly individually-rational matching-outcomes are one-sided incomplete-information stable. Thus, in a positive assortative matching model all matching outcomes are incompleteinformation stable including the negative assortative match. An ex post incentive compatible mechanism implements the best complete-information stable matching for workers; this mechanism does not assume anonymous preferences. Extensions to two-sided incomplete information stability are investigated. The set of stable matching-outcomes under two-sided incomplete information are a superset of stable matching-outcomes under one-sided incomplete information, which in turn include complete-information stable matchings. ∗I am grateful to Oleg Baranov, Pradeep Dubey, Federico Echenique, Vijay Krishna, Pino Lopomo, Joe Ostroy, and Marek Pycia for helpful comments. †UCLA Anderson School of Management ([email protected])