Adaptive Priority Mechanisms

Abstract

How should authorities that care about match quality and diversity allocate resources when they are uncertain about the market? We introduce adaptive priority mechanisms (APM) that prioritize agents based on their scores and characteristics. We derive an APM that is optimal and show that the ubiquitous priority and quota mechanisms are optimal if and only if the authority is risk-neutral or extremely risk-averse over diversity, respectively. Deferred Acceptance implements the unique stable matching when all authorities use the optimal APM. We provide a practical roadmap for implementing APM as a market-design solution and illustrate this using Chicago Public Schools data.

Keywords: Matching Theory, Market Design, Allocative Efficiency, Affirmative Action, Instrument Choice

JEL Classification: C78, D47, D61