The Size of the Core in Assignment Markets

We consider a two-sided assignment market with agent types and a stochastic structure, similar to models used in empirical studies. We characterize the size of the core in such markets. Each agent has a randomly drawn productivity with respect to each type of agent on the other side. The value generated from a match between a pair of agents is the sum of the two productivity terms, each of which depends only on the type (but not the identity) of one of the agents, and a third deterministic term driven by the pair of types. We prove, under reasonable assumptions, that keeping the number of agent types fixed, the relative size of the core vanishes rapidly as the number of agents grows. Numerical experiments confirm that the core is typically small. Our results provide justification for the typical assumption of a unique core outcome in such markets, that is close to a limit point. Further, our results suggest that, given market composition, the wages are almost uniquely determined in equilibrium.