Adaptive Priority Mechanisms

93 Pages Posted: 8 Apr 2020 Last revised: 19 Oct 2022

See all articles by Oguzhan Celebi

Oguzhan Celebi

Massachusetts Institute of Technology (MIT) - Department of Economics

Joel P. Flynn

Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: October 18, 2022

Abstract

How should authorities that care about match quality and diversity allocate resources when they are uncertain of the market they face? Such a question appears in many contexts, including the allocation of school seats to students from various socioeconomic groups with differing exam scores. We propose a new class of adaptive priority mechanisms (APM) that prioritize agents as a function of both scores that reflect match quality and the number of assigned agents with the same socioeconomic characteristics. When there is a single authority and preferences over scores and diversity are separable, we derive an APM that is optimal, generates a unique outcome, and can be specified solely in terms of the preferences of the authority. By contrast, the ubiquitous priority and quota mechanisms are optimal if and only if the authority is risk-neutral or extremely risk-averse over diversity, respectively. When there are many authorities, it is dominant for each of them to use the optimal APM, and each so doing implements the unique stable matching. However, this is generally inefficient for the authorities. A centralized allocation mechanism that first uses an aggregate APM and then implements authority-specific quotas restores efficiency. Using data from Chicago Public Schools, we estimate that the gains from adopting APM are considerable.

Keywords: Matching Theory, Market Design, Allocative Efficiency, Affirmative Action, Instrument Choice

JEL Classification: C78, D47, D61

Suggested Citation

Celebi, Oguzhan and Flynn, Joel P., Adaptive Priority Mechanisms (October 18, 2022). Available at SSRN: https://ssrn.com/abstract=3562665 or http://dx.doi.org/10.2139/ssrn.3562665

Oguzhan Celebi

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

Joel P. Flynn (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

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