Licun Xue

Random paths to stability in the roommate problem

This paper studies whether a sequence of myopic blockings leads to a stable matching in the roommate problem. We prove that if a stable matching exists and preferences are strict, then for any unstable matching, there exists a finite sequence of successive myopic blockings leading to a stable matching. This implies that, starting from any unstable matching, the process of allowing a randomly chosen blocking pair to form converges to a stable matching with probability one. This result generalizes those of Roth and Vande Vate [Econometrica 58 (1990) 1475] and Chung [Games Econ. Behav. 33 (2000) 206] under strict preferences.

Decentralized matching: The role of commitment

The two-sided matching literature has focused on static and centralized games. However, in many markets, the matching is determined in decentralized fashion and continues to change. This paper considers infinitely-repeated matching games, where firms whose positions become vacant make offers to workers, who then decide which offers to accept and the game continues. We study how the stationary-equilibrium outcome depends on whether players commit to their employment relationships. We show that, without commitment from either side of the market (i.e., each contract expires in a period), the equilibrium matching is stable in all periods. With one-sided commitment (where firms offer tenured jobs) or two-sided commitment, the final matching may be unstable. With one-sided commitment, the final matching may be one where all workers are worse off and all firms are better off than in every stable matching, implying that the workers are made worse off by job protection.

Winners and Losers from the Gradual Formation of Trading Blocs

Although global free trade is efficient, each countrys benefit from free trade depends on the path that leads to the global free trade agreement. Using a dynamic model of trading bloc formation, we show that when global free trade is reached gradually the countries that are initially excluded gain less than the rest and may be even made worse off by the final free trade agreement than they were in the initial state of no trading blocs.

Bidding and sequential coalition formation with externalities

We study coalition formation games with externalities where each agent’s payoff depends on the entire partition. As in Bloch (Games Econ Behav 14:90–123, 1996) and Ray and Vohra (Games Econ Behav 26:268–336, 1999), we assume that coalitions form sequentially and agreements are irreversible. Instead of a fixed order protocol, we use a “bidding mechanism” (see Pérez-Castrillo and Wettstein in Am Econ Rev 92(5):1577–1587, 2002) to determine proposals and transfers among the agents. We show that such a mechanism facilitates the attainment of efficiency; in particular, our game admits a Markov perfect equilibrium with the property of full dynamic efficiency. In addition, the aggregate equilibrium payoffs of our game exhibit monotonicity in time. Nevertheless, inefficient equilibria can also emerge.

Forming Efficient Free-Trade Networks: A Sequential Mechanism

This paper considers a sequential network formation game, whose subgame-perfect equilibrium can generate an efficient and complete network as the equilibrium outcome, thereby achieving global free trade. Our result shows that bilateral free-trade agreements can be compatible with global free trade.