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Competitive Equilibrium from Equal Incomes for Two-Sided Matching

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  • He, Yinghua
  • Yan, Jianye

Abstract

Competitive Equilibrium from Equal Incomes for Two-Sided Matching Using the assignment of students to schools as our leading example, we study many-to-one two-sided matching markets without transfers. Students are endowed with cardinal preferences and schools with ordinal ones, while preferences of both sides need not be strict. Using the idea of a competitive equilibrium from equal incomes (CEEI, Hylland and Zeckhauser (1979)), we propose a new mechanism, the Generalized CEEI, in which students face di¤erent prices depending on how schools rank them. It always produces fair (justified-envy-free) and ex ante e¢ cient random assignments and stable deterministic assignments if both students and schools are truth-telling. We show that each student's incentive to misreport vanishes when the market becomes large, given all others are truthful. The mechanism is particularly relevant to school choice as schools' priority orderings over students are usually known and can be considered as their ordinal preferences. More importantly, in settings like school choice where agents have similar ordinal preferences, the mechanismis explicit use of cardinal preferences may significantly improve eficiency. We also discuss its application in school choice with group-specific quotas and in one-sided matching.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 12-344.

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Date of creation: Oct 2012
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Handle: RePEc:tse:wpaper:26415

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  1. He, Yinghua, 2012. "Gaming the Boston School Choice Mechanism in Beijing," TSE Working Papers 12-345, Toulouse School of Economics (TSE).
  2. Atila Abdulkadiroglu & Yeon-Koo Che & Yosuke Yasuda, 2008. "Expanding "Choice" in School Choice," Discussion Papers 0809-09, Columbia University, Department of Economics.
  3. Bogomolnaia, Anna & Moulin, Herve, 2001. "A New Solution to the Random Assignment Problem," Journal of Economic Theory, Elsevier, vol. 100(2), pages 295-328, October.
  4. Sonmez, Tayfun, 1997. "Manipulation via Capacities in Two-Sided Matching Markets," Journal of Economic Theory, Elsevier, vol. 77(1), pages 197-204, November.
  5. Roberts, Donald John & Postlewaite, Andrew, 1976. "The Incentives for Price-Taking Behavior in Large Exchange Economies," Econometrica, Econometric Society, vol. 44(1), pages 115-27, January.
  6. Kesten, Onur, 2006. "On two competing mechanisms for priority-based allocation problems," Journal of Economic Theory, Elsevier, vol. 127(1), pages 155-171, March.
  7. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
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Cited by:
  1. Antonio Miralles, 2013. "Sequential Pseudomarkets: Welfare Economics in Random Assignment Economies," Working Papers 699, Barcelona Graduate School of Economics.

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