Social, Behavioral & Experimental Economics (SBEE): A Dynamic Matching Mechanism for College Admissions: Theory and Experiment

Abstract:
Market design has provided many managerial insights into why certain market institutions fail while others succeed in allocating scarce resources in both the for- and non-profit sectors. In this paper, we analyze a new form of dynamic matching mechanism enabled by innovations in information technology. We provide a theoretical and experimental examination of this mechanism in the context of college admissions in Inner Mongolia, China, where students are given real-time allocation feedback and are allowed to revise their choices. Theoretically, we show that efficient and stable outcomes arise in every rationalizable strategy profile if there is a sufficient number of revision opportunities. Experimentally, we find that when the coordination cost of reaching equilibrium is high, the Inner Mongolia Dynamic mechanism performs better than theoretical predictions compared with the Deferred Acceptance and the Boston mechanisms. These results suggest that the Inner Mongolia Dynamic mechanism can be a good substitute for static mechanisms when the coordination cost of reaching equilibrium is high. The Inner Mongolia Dynamic mechanism may also be useful in matching potential employers and employees in the labor market.