Making it Safe to Use Centralized Marketplaces: Dominant Individual Rationality and Applications to Market Design

37 Pages Posted: 27 Nov 2017 Last revised: 7 Oct 2018

See all articles by Benjamin Roth

Benjamin Roth

Harvard Business School

Ran I. Shorrer

Pennsylvania State University

Date Written: October 1, 2018

Abstract

Often market designers cannot force agents to join a centralized marketplace rather than using their pre-existing decentralized strategies. We propose a new desideratum that guarantees the safety of participation: Dominant Individual Rationality (DIR). A marketplace is DIR if every decentralized strategy is weakly dominated by some centralized strategy. Our analysis yields new insight into the merits of the redesigns of the labor market for health service psychology post-doctorates and the National Residency Matching Program and gastroenterology fellowship matches. We also provide a general construction to achieve approximate DIR across a wide range of marketplace designs.

JEL Classification: D47, D82

Suggested Citation

Roth, Benjamin and Shorrer, Ran I., Making it Safe to Use Centralized Marketplaces: Dominant Individual Rationality and Applications to Market Design (October 1, 2018). Available at SSRN: https://ssrn.com/abstract=3073027 or http://dx.doi.org/10.2139/ssrn.3073027

Benjamin Roth

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Ran I. Shorrer (Contact Author)

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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