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Making Marketplaces Safe: Dominant Individual Rationality and Applications to Market Design

Author

Listed:
  • Benjamin N. Roth

    (Harvard Business School, Boston, Massachusetts 02163)

  • Ran I. Shorrer

    (Department of Economics, The Pennsylvania State University, State College, Pennsylvania 16801)

Abstract

Often market designers cannot force agents to join a marketplace rather than using pre-existing institutions. We propose a new desideratum for marketplace design that guarantees the safety of participation: dominant individual rationality (DIR). A marketplace is DIR if every pre-existing strategy is weakly dominated by some strategy within the marketplace. We study applications to the design of labor markets and the sharing economy. We also provide a general construction to achieve approximate DIR across a wide range of marketplace designs.

Suggested Citation

  • Benjamin N. Roth & Ran I. Shorrer, 2021. "Making Marketplaces Safe: Dominant Individual Rationality and Applications to Market Design," Management Science, INFORMS, vol. 67(6), pages 3694-3713, June.
    • Handle: RePEc:inm:ormnsc:v:67:y:2021:i:6:p:3694-3713
    DOI: 10.1287/mnsc.2020.3643
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    References listed on IDEAS

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    Cited by:

    1. Alvin E. Roth, 2023. "Market Design and Maintenance," NBER Chapters, in: New Directions in Market Design, National Bureau of Economic Research, Inc.

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