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Question regarding preferences in Gale and Shapley (1962)

Economics Asked on February 6, 2021

Is it correct to say that preferences in the classic Gale and Shapley College Admissions problem are quasi-linear?

Or is this something thats introduced later in the literature, vis a vis Shapley and Shubik (1971), Kelso and Crawford (1982), etc?

Thanks

One Answer

Gale and Shapley barely make any assumptions about preferences. They don't need a functional form, simply an ordinal ranking of the options. Moreover, there are no transfers in this setting, only the discrete matching options.

Even Kelso and Crawford do not use quasi-linear utility. They assume some utility function that is increasing and continuous in salary, but not necessarily linearly increasing.

In Shapley and Shubik (1971) monetary transfers enter linearly. However, I wouldn't call this quasi-linear utility, because in quasi-linear utility most people have the following functional form over a good $x$ and money $m$ in mind: $u(x,m) = v(x) - m$, where $v$ is a continuous function. In their model, the $v(x)$ is simply the money value of house $x$, where the houses are district options.

Answered by Bayesian on February 6, 2021

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