Making Marketplaces Safe: Dominant Individual Rationality and Applications to Market Design
45 Pages Posted: 27 Nov 2017 Last revised: 31 Mar 2020
Date Written: October 1, 2018
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: Suggested Citation