Purchasing Seats for High School Admission and Inequality
81 Pages Posted: 12 May 2020 Last revised: 9 Dec 2021
Date Written: January 21, 2021
Many Chinese cities once gave students the option of paying higher tuition to attend their preferred schools. This seat-purchasing mechanism is neither strategy-proof nor stable. Our paper combines administrative and survey data to estimate students' preferences and conduct welfare analysis. We find that changing from a deferred acceptance mechanism to the so-called cadet-optimal stable mechanism reduces students' welfare but that adopting the observed seat-purchasing mechanism alleviates this welfare loss. Under the latter approach, upper-tier schools collect significantly more tuition --- with a minimal change in student quality --- whereas collecting more tuition results in middle-tier schools facing substantial uncertainty about student quality.
Keywords: Market Design, School Choice, High School Admission, Matching with Contracts
JEL Classification: D40, I20
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