Optimal Priority-Based Allocation Mechanisms

75 Pages Posted: 25 Jul 2019 Last revised: 11 Aug 2019

See all articles by Peng Shi

Peng Shi

University of Southern California - Marshall School of Business

Date Written: July 25, 2019

Abstract

This paper develops a tractable methodology for designing an optimal priority system for assigning agents to heterogeneous items while accounting for agents' choice behavior. The space of mechanisms being optimized includes deferred acceptance and top trading cycles as special cases. In contrast to previous literature, I treat the inputs to these mechanisms, namely the priority distribution of agents and quotas of items, as parameters to be optimized. The methodology is based on analyzing large market models of one-sided matching using techniques of network revenue management, and solving a certain assortment planning problem whose objective is social welfare. I apply the methodology to school choice and show that restricting choices may be beneficial to student welfare. Moreover, I compute optimized choice sets and priorities for elementary school choice in Boston, improving upon the results of Ashlagi and Shi (2015).

Keywords: market design, one-sided matching, assortment planning, school choice

JEL Classification: D47, C61, C78

Suggested Citation

Shi, Peng, Optimal Priority-Based Allocation Mechanisms (July 25, 2019). Available at SSRN: https://ssrn.com/abstract=3425348 or http://dx.doi.org/10.2139/ssrn.3425348

Peng Shi (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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