Working Papers

Matching with Random Components: Simulations (with Pierre-André Chiappori and Bernard Salanié). December 2019. [PDF]

Abstract

Several recent papers have analyzed matching markets under the dual assumption of perfectly transferable utility and a separable joint surplus. Separability rules out any contribution to the joint surplus of a match of interactions between characteristics of partners that are unobserved by the analyst. Since it may be unrealistic in some settings, we explore the consequences of mistakenly imposing it. We find that the biases that result from this misspecification grow slowly with the magnitude of the contribution of the interaction terms. In particular, the estimated complementarities in the Choo and Siow (2006) model are remarkably robust to the inclusion of interaction terms.