A Pigouvian Approach to Congestion in Matching Markets

81 Pages Posted: 17 Dec 2018

See all articles by Yinghua He

Yinghua He

University of Toulouse 1 - Toulouse School of Economics (TSE)

Thierry Magnac

Toulouse School of Economics; University of Toulouse 1 - Industrial Economic Institute (IDEI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Abstract

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

He, Yinghua and Magnac, Thierry, A Pigouvian Approach to Congestion in Matching Markets. IZA Discussion Paper No. 11967, Available at SSRN: https://ssrn.com/abstract=3301721

Yinghua He (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

21 allée de Brienne
Toulouse, 31015
France

Thierry Magnac

Toulouse School of Economics ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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