Effective affirmative action in school choice

The prevalent affirmative action policy in school choice limits the number of admitted majority students to give minority students higher chances to attend their desired schools. There have been numerous efforts to reconcile affirmative action policies with celebrated matching mechanisms such as the deferred acceptance and top trading cycles algorithms. Nevertheless, it is theoretically shown that under these algorithms, the policy based on majority quotas may be detrimental to minorities. Using simulations, we find that this is a more common phenomenon rather than a peculiarity. To circumvent the inefficiency caused by majority quotas, we offer a different interpretation of the affirmative action policies based on minority reserves. With minority reserves, schools give higher priority to minority students up to the point that the minorities fill the reserves. We compare the welfare effects of these policies. The deferred acceptance algorithm with minority reserves Pareto dominates the one with majority quotas. Our simulations, which allow for correlations between student preferences and school priorities, indicate that minorities are, on average, better off with minority reserves while adverse effects on majorities are mitigated. © 2013 Isa E. Hafalir, M. Bumin Yenmez, and Muhammed A. Yildirim

Parallel Innovation Contests

We study multiple parallel contests where contest organizers elicit solutions to innovation-related problems from a set of agents. Each agent may participate in multiple contests and exert effort to improve her solution for each contest she enters, but the quality of her solution also depends on an output uncertainty. We first analyze whether an organizer's profit can be improved by discouraging agents from participating in multiple contests. We show, interestingly, that organizers benefit from agents' participation in multiple contests when the agent's output uncertainty is sufficiently large. A managerial insight from this result is that when organizers elicit innovative solutions rather than low-novelty solutions, agents' participation in multiple contests may be beneficial to organizers. We further show that an organizer's profit is unimodal in the number of contests, and the optimal number of contests increases with the agent's output uncertainty. This finding may explain why many organizations run multiple contests in practice, and it prescribes a larger number of contests when organizations seek innovative solutions rather than low-novelty solutions

College admissions with entrance exams: Centralized versus decentralized

© 2018 Elsevier Inc. We study a college admissions problem in which colleges accept students by ranking students’ efforts in entrance exams. Students’ ability levels affect the cost of their efforts. We solve and compare equilibria of “centralized college admissions” (CCA) where students apply to all colleges and “decentralized college admissions” (DCA) where students only apply to one college. We show that lower ability students prefer DCA whereas higher ability students prefer CCA. Many predictions of the theory are supported by a lab experiment designed to test the theory, yet we find a number of differences that render DCA less attractive than CCA compared to the equilibrium benchmark

Matching with aggregate externalities

© 2016. 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

Selling goods of unknown quality: Forward versus spot auctions

We consider an environment where the sale can take place so early that both the seller and potential buyers have the same uncertainty about the quality of the good. We present a simple model that allows the seller to offer the good for sale before or after this uncertainty is resolved, namely via forward auction or spot auction, respectively. We solve for the equilibrium of these two auctions and then compare the resulting expected revenues. We also consider the revenue implications of insurance in forward auctions. © 2011 Springer-Verlag

Call Auctions with Contingent Orders

We introduce a new mechanism for call auctions which are widely used in stock exchanges. Our unique design incorporates contingent claims (buy stock A, if selling stock B) into the price discovery process. With our proposed mechanism, we show that higher liquidity during the call auctions is achieved, as well as lower volatility after the call auctions. Moreover, we show that current call auctions and the proposed mechanism have similar incentive properties. Hence, we argue that the proposed mechanism would be an improvement over the existing opening auction rules at stock exchanges.</jats:p

Core deviation minimizing auctions

© 2014, Springer-Verlag Berlin Heidelberg. In a stylized environment with complementary products, we study a class of dominant strategy implementable direct mechanisms and focus on the objective of minimizing the expected surplus from core deviations. For this class of mechanisms, we formulate the core deviation minimization problem as a calculus of variations problem and numerically solve it for some interesting special cases. We then compare the core deviation surplus in the optimal auction (CDMA) to that in Vickrey-Clark-Groves mechanism (VCG) and core-selecting auctions (CSAs). We find that the expected surplus from core deviations can be significantly smaller in CDMA than that in both VCG and CSAs

Interdistrict school choice: A theory of student assignment

Interdistrict school choice programs—where a student can be assigned to a school outside of her district—are widespread in the US. We introduce a model of interdistrict school choice and present mechanisms that produce stable assignments. We consider four categories of policy goals on assignments and identify when the mechanisms can achieve them. By introducing a novel framework of interdistrict school choice, we provide a new avenue of research in market design

Tie-breaking and efficiency in the laboratory school choice

In school choice problems with weak priorities, the deferred acceptance (DA) mechanism may produce inefficient stable matchings due to tie-breaking. The stable-improvement-cycles (SIC) and choiceaugmented deferred acceptance (CADA) mechanisms were proposed to remedy inefficiencies but they are manipulable. In a simple environment, we theoretically and experimentally analyze students’ strategic behavior when DA, SIC, and CADA are implemented. We show that obtaining the efficiency gain relative to DA crucially depends on whether students report their preferences truthfully in SIC and whether they play a particular equilibrium strategy in CADA. Our laboratory experiment reveals that (i) non-negligible degrees of untruthful reporting are observed but they are not a major drawback for practical efficiency improvements of the mechanisms we consider; (ii) SIC achieves gains from trade whenever they exist, both on and off the equilibrium paths; and (iii) the additional layer of equilibrium coordination required by CADA makes it harder for CADA to fully produce the promised welfare advantage relative to DA. These findings are robust to various environments