Firm-quasi-stability and re-equilibration in matching markets with contracts

Abstract: We study firm-quasi-stability in the framework of many-to-many matching with contracts under substitutable preferences. We establish various links between firm-quasi-stability and stability, and give new insights into the existence and lattice property of stable allocations. In addition, we show that firm-quasi-stable allocations appear naturally when the stability of the market is disrupted by the entry of new firms or the retirement of some workers, and introduce a generalized deferred acceptance algorithm to show that the market can regain stability from firm-quasi-stable allocations by a decentralized process of offers and acceptances. Moreover, it is shown that the entry of new firms or the retirement of workers cannot be bad for any of the incumbent workers and cannot be good for any of the original firms, while each new firm gets its optimal outcome under stable allocations whenever the law of aggregate demand holds.