Stable and Efficient Resource Allocation with Contracts
American Economic Journal: Microeconomics
vol. 15,
no. 2, May 2023
(pp. 627-59)
Abstract
Consider indivisible-object allocation with contracts, such as college admissions, where contracts specify majors. Can a designer guarantee a stable and (student) efficient matching? I show that contracts put stability and efficiency at odds; a necessary condition to ensure these properties is student-lexicographic priorities—schools must rank contracts from "second-tier" students consecutively. I present the weakest restriction guaranteeing stability and efficiency, and characterize necessary and sufficient conditions for any mechanism within a general class to deliver a stable and efficient matching in an incentive compatible manner. I apply this result to two well-known mechanisms: deferred acceptance and top trading cycles.Citation
Pakzad-Hurson, Bobak. 2023. "Stable and Efficient Resource Allocation with Contracts." American Economic Journal: Microeconomics, 15 (2): 627-59. DOI: 10.1257/mic.20210109Additional Materials
JEL Classification
- C78 Bargaining Theory; Matching Theory
- D82 Asymmetric and Private Information; Mechanism Design
- D86 Economics of Contract: Theory
- I23 Higher Education; Research Institutions
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