Stable matching under regulation

Abstract

In a market in which any coalition can reach agreements, a stable outcome need not exist even when agents have substitutable preferences. We show how regulation can restore stability. If a regulator participates in every agreement, a setwise stable outcome exists when each ordinary agent's preference satisfies a condition weaker than substitutability, while the regulator's preference remains largely unrestricted. An alternative existence result allows ordinary agents to have arbitrary preferences while requiring the regulator to support each agent's profitable contract deletions. Our results apply to matching markets involving regulated activities.