Optimal Priority-Based Allocation Mechanisms
75 Pages Posted: 25 Jul 2019 Last revised: 11 Aug 2019
Date Written: July 25, 2019
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
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