Matching Markets - Behavioral Issues and New Theoretical Approaches
Sunday, Jan. 6, 2019 8:00 AM - 10:00 AM
- Chair: Jacob Leshno, Columbia University
The Cutoff Structure of Top Trading Cycles in School Choice
AbstractThis paper develops a tractable theoretical framework for the Top Trading Cycles (TTC) mechanism for school choice that allows quantifying welfare and optimizing policy decisions. We compute welfare for TTC and Deferred Acceptance (DA) under different priority structures, and find that the choice of priorities can have larger welfare implications than the choice of mechanism. We solve for the welfare-maximizing distributions of school quality for parametrized economies, and find that optimal investment decisions can be very different under TTC and DA.
Our framework relies on a novel characterization of the TTC assignment in terms of a cutoff for each pair of schools. These cutoffs parallel prices in competitive equilibrium, with students' priorities serving the role of endowments. We show that these cutoffs can be computed directly from the distribution of preferences and priorities in a continuum model, and derive closed-form solutions and comparative statics for parameterized settings. The TTC cutoffs clarify the role of priorities in determining the TTC assignment, but also demonstrate that TTC is more complicated than DA.
Complementary Inputs and Stability in Large Trading Networks
AbstractThis paper studies a model of large trading networks with bilateral contracts. Contracts capture exchange, production, and prices, as well as frictions, such as market incompleteness, price regulation, and taxes. In my setting, a stable outcome exists in any acyclic network, as long as firms regard sales as substitutes and standard continuity and convexity conditions are satisfied. Thus, complementarities between inputs do not preclude the existence of stable outcomes in large supply chains, unlike in discrete markets. Additional results explain what kinds of equilibria are guaranteed to exist when substitutability in the sale direction and acyclicity are relaxed.
Obvious Dominance and Random Priority
AbstractWe construct the full class of obviously strategy-proof mechanisms in environments without transfers as the class of clinch-or-pass games we call millipede games. Some millipede games are indeed simple and widely used in practice, while others may be complex, requiring agents to perform lengthy backward induction, and are rarely observed. We introduce a natural strengthening of obvious strategy-proofness called strong obvious strategy-proofness, which eliminates some of the more complex millipede games. We use our definition to characterize the well-known Random Priority mechanism as the unique mechanism that is efficient, fair, and simple to play, thereby explaining its popularity in practical applications.
- D4 - Market Structure, Pricing, and Design
- D9 - Micro-Based Behavioral Economics