Certain aggregate externalities, like those due to knowledge and public goods, do not change very much in response to changes in two individuals' actions. Thus, individuals rationally regard the level of the externality as fixed in their negotiations with each other. We leverage this observation to develop a general framework for the existence of stable matchings in moderately sized one-to-one matching games, and we characterize intuitive restrictions on preferences that are sufficient for existence. JEL Classification: C78 and D62.
When a decision maker is a member of multiple social groups, her actions may cause information to "spill over" from one group to another. We study the nature of these spillovers in an observational learning game where two groups interact via a common player, and where conventions emerge when players follow the decisions of the members of their own groups rather than their own private information. We show that:(i) if a convention develops in one group but not the other group, then the convention spills over via the common player; (ii) when conventions disagree, then the common player's decision breaks the convention in one group; and (iii) when no conventions have developed, then the common player's decision triggers conventions on the same action in both groups. We also …nd that information spillovers may reduce welfare.
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