Match or Mismatch? Learning and Inertia in School Choice

80 Pages Posted: 27 Jun 2018

See all articles by Yusuke Narita

Yusuke Narita

Yale University - Department of Economics; Yale University - Cowles Foundation

Date Written: June 18, 2018

Abstract

Centralized matching markets are designed assuming that participants make well-informed choices upfront. However, this paper uses data from NYC’s school choice system to show that families’ choices change after the initial match as they learn about schools. I develop an empirical model of evolving demand for schools under learning, endowment effects in response to prior assignments, and switching costs. These model components are identified by using admissions lotteries and other institutional features. The estimates suggest that there are even more changes in underlying demand than in observed choices, undermining the welfare performance of the initial match. To alleviate the welfare cost of demand changes, I theoretically and empirically investigate dynamic mechanisms that best accommodate choice changes. These mechanisms improve on the existing discretionary reapplication process. In addition, the gains from the mechanisms drastically change depending on the extent of demand-side inertia caused by switching costs. Thus, the gains from a centralized market depend not only on its design but also on demand-side frictions (such as demand changes and inertia).

Suggested Citation

Narita, Yusuke, Match or Mismatch? Learning and Inertia in School Choice (June 18, 2018). Available at SSRN: https://ssrn.com/abstract=3198417 or http://dx.doi.org/10.2139/ssrn.3198417

Yusuke Narita (Contact Author)

Yale University - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

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