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Stable and Efficient Resource Allocation with Contracts

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  • Bobak Pakzad-Hurson

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.

Suggested Citation

  • Bobak Pakzad-Hurson, 2023. "Stable and Efficient Resource Allocation with Contracts," American Economic Journal: Microeconomics, American Economic Association, vol. 15(2), pages 627-659, May.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:2:p:627-59
    DOI: 10.1257/mic.20210109
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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • I23 - Health, Education, and Welfare - - Education - - - Higher Education; Research Institutions

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