Strategic Disaggregation in Matching Markets
116 Pages Posted: 14 Nov 2014 Last revised: 16 Jun 2021
Date Written: June 15, 2021
Decisions agents make before and after matching can be strategically linked through the match. We demonstrate this linkage in a game where universities either require students to commit to majors before matriculating or allow students to pick majors during their studies. The interaction between "matching forces'' (competition for higher quality students) and "principal-agent forces'' (moral hazard and adverse selection) leads to two equilibria that mirror the admissions systems in the US and England. With monetary transfers, our model provides insights into athletic scholarships. Payment caps that restrict transfers to potential athletes who decide not to play sports can maximize welfare.
Keywords: Matching with contracts, college admissions, athletic scholarships
JEL Classification: C78, D61, D78, I21, I23
Suggested Citation: Suggested Citation