A Pigouvian Approach to Congestion in Matching Markets
81 Pages Posted: 17 Dec 2018
Recruiting agents, or "programs" costly screen "applicants" in matching processes, and congestion in a market increases with the number of applicants to be screened. To combat this externality that applicants impose on programs, application costs can be used as a Pigouvian tax. Higher costs reduce congestion by discouraging applicants from applying to certain programs; however, they may harm match quality. In a multiple-elicitation experiment conducted in a real-life matching market, we implement variants of the Gale-Shapley Deferred-Acceptance mechanism with different application costs. Our experimental and structural estimates show that a (low) application cost effectively reduces congestion without harming match quality.
Keywords: Gale-Shapley Deferred Acceptance Mechanism, costly preference formation, screening, stable matching, congestion, matching market place
JEL Classification: D78, D47, D50, D61, I21
Suggested Citation: Suggested Citation