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Designing mechanisms to focalize welfare-improving strategies

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  • Fragiadakis, Daniel E.
  • Troyan, Peter

Abstract

Many institutions use matching algorithms to allocate resources to individuals. Examples include the assignment of doctors, students and military cadets to hospitals, schools and branches, respectively. Oftentimes, agents' ordinal preferences are highly correlated, motivating the use of mechanisms that provide agents with channels through which they can express some cardinal preference information. This paper studies two such mechanisms, one from the field and one we design. In each of the games induced by these algorithms, we identify the strategies that constitute the unique symmetric ex-post equilibrium. Interestingly, when we test the mechanisms in the lab, these equilibrium predictions fail. Subjects nevertheless behave largely in concordance with the mechanisms' intended strategies; the focalization of such strategies lead to greater welfare in relation to a popular existing mechanism.

Suggested Citation

  • Fragiadakis, Daniel E. & Troyan, Peter, 2019. "Designing mechanisms to focalize welfare-improving strategies," Games and Economic Behavior, Elsevier, vol. 114(C), pages 232-252.
    • Handle: RePEc:eee:gamebe:v:114:y:2019:i:c:p:232-252
    DOI: 10.1016/j.geb.2019.02.002
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    More about this item

    Keywords

    Dictatorship; Indifference; Matching; Welfare; Efficiency; Experiments;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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