21 Pages Posted: 18 Sep 2015 Last revised: 27 Dec 2016
Date Written: December 1, 2016
Ergin and Sönmez (2006) showed that for schools it is a dominant strategy to report their preferences truthfully under the Boston mechanism, and that the Nash equilibrium outcomes in undominated strategies of the induced game are stable. We show that these results rely crucially on two assumptions. First, schools need to be restricted to reporting all students as acceptable. Second, students cannot observe the preferences reported by the schools before submitting their own preferences. We show that relaxing either assumption gives schools an incentive to manipulate their reported preferences. We provide a full characterization of undominated strategies for schools and students for the simultaneous move game induced by the Boston mechanism. Nash equilibrium outcomes in undominated strategies of that game may contain unstable matchings. Furthermore, when students observe schools' preferences before submitting theirs, the subgame perfect Nash equilibria of the sequential game induced by the Boston mechanism may also contain unstable matchings. Finally, we show that schools may have an incentive to manipulate capacities only if students observe the schools' strategies before submitting their own preferences.
Keywords: Mechanism Design, Two-Sided Matching, Boston Mechanism, School Choice
JEL Classification: C78, D63, D78, D82
Suggested Citation: Suggested Citation
Bó, Inácio and Heller, C.-Philipp, Strategic Schools Under the Boston Mechanism Revisited (December 1, 2016). Available at SSRN: https://ssrn.com/abstract=2661961 or http://dx.doi.org/10.2139/ssrn.2661961