How (Not) to Eat a Hot Potato

We study a matching problem where players are repeatedly assigned tasks. There are frictions in the matching process: players may be matched with undesirable tasks ("hot potatoes'') even if more attractive tasks ("sweet potatoes'') are available. There is a tradeoff between waiting for sweet potatoes and reducing matching frictions by accepting hot potatoes. Under the optimal mechanism, players accept hot potatoes as long as the relative cost of doing so is not too high. In decentralised settings, externalities and strategic complementarities can lead to welfare loss. We quantify the welfare gain of centralisation, which can be substantial even when players are arbitrarily patient.

Recording: To view the seminar recording, click here.