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

45 Pages Posted: 27 Nov 2017 Last revised: 31 Mar 2020

See all articles by Benjamin Roth

Benjamin Roth

Harvard University - Business School (HBS)

Ran I. Shorrer

Pennsylvania State University

Date Written: October 1, 2018

Abstract

Often market designers cannot force agents to join a marketplace rather than using preexisting institutions. We propose a new desideratum for marketplace design that guarantees the safety of participation: Dominant Individual Rationality (DIR). A marketplace is DIR if every pre-existing strategy is weakly dominated by some strategy within the marketplace. We study applications to the design of labor markets and the sharing economy. 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 Marketplaces Safe: 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 University - Business School (HBS) ( 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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