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Optimal Priority-Based Allocation Mechanisms

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  • Peng Shi

    (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

Abstract

This paper develops a tractable methodology for designing an optimal priority system for assigning agents to heterogeneous items while accounting for agents’ choice behavior. The space of mechanisms being optimized includes deferred acceptance and top trading cycles as special cases. In contrast to previous literature, I treat the inputs to these mechanisms, namely the priority distribution of agents and quotas of items, as parameters to be optimized. The methodology is based on analyzing large market models of one-sided matching using techniques from revenue management and solving a certain assortment planning problem whose objective is social welfare. I apply the methodology to school choice and show that restricting choices may be beneficial to student welfare. Moreover, I compute optimized choice sets and priorities for elementary school choice in Boston.

Suggested Citation

  • Peng Shi, 2022. "Optimal Priority-Based Allocation Mechanisms," Management Science, INFORMS, vol. 68(1), pages 171-188, January.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:1:p:171-188
    DOI: 10.1287/mnsc.2020.3925
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