Sergei Severinov (University of British Columbia)

“Bilateral Communication and Matching/Partnership Formation”

Abstract

We consider match formation between two parties, such as marriage, merger or partnership formation. Each party has private information about the value of the match, which creates friction in the matching process. We focus on the role of bilateral communication in this setting and investigate how such communication should be organized in order to improve the matching process. Different communication protocols are considered, and their outcomes are characterized. Our main results indicate that a simple communication protocol which involves a single message sent by one of the parties is sufficient for implementation of monotone deterministic decision rules. However, when the decision rules do not satisfy these properties,
longer communication protocols in which the parties exchange messages, and do so one after another, are necessary.
Our analysis provides a perspective on the role of a neutral mechanism designer or a mediator in the class of problems that we study.