Incomplete Information and Matching of Likes: A Mechanism Design Approach

ABSTRACT : We employ a mechanism design approach and study the implementability of stable matchings in a two sided market model with one sided incomplete information. Firms’ types are assumed to be publicly known, while workers’ types are private information. A mechanism generates a matching and a public announcement at each reported profile of workers’ types. We show that, when the preferences of the agents are increasing in the types of their matching partner, the assortative matching mechanism publicly announcing the set of reported types is incentive compatible. This mechanism fails to be incentive compatible when we allow for either private verification of types or incompleteness of information on both sides of the market.