The Cutoff Structure of Top Trading Cycles in School Choice

110 Pages Posted: 20 Apr 2017 Last revised: 25 Jun 2020

Date Written: October 28, 2017

Abstract

This 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.

Keywords: Assignment Problem, School Choice, Market Design, Large Economy, Top Trading Cycles

JEL Classification: C63, C70, D47, D61, D71

Suggested Citation

Leshno, Jacob and Lo, Irene, The Cutoff Structure of Top Trading Cycles in School Choice (October 28, 2017). Available at SSRN: https://ssrn.com/abstract=2954870 or http://dx.doi.org/10.2139/ssrn.2954870

Jacob Leshno (Contact Author)

Chicago Booth ( email )

5807 S. Woodlawn Ave
Chicago, IL 60610
United States

Irene Lo

Stanford ( email )

United States

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