Econometrics and Applied Micro Seminar

We consider the problem of matching with nontransferable utility (NTU) and stochastic unobserved heterogeneity in agents' preferences. Our model differs from Dagsvik (2000) and Menzel (2014) in that we assume that there is heterogeneity on tastes only, and agents are indifferent between partners of same charactetistics. We prove the existence of a stable matching using a discrete choice version of the Deferred Acceptance algorithm. For this purpose, we develop a theory of capacity-constrained discrete choice, based on the notion of entropy of choice, which is of independent interest and has a number of other potential applications. We derive implications for identification of NTU matching games.