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
Date Written: October 1, 2018
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: Suggested Citation