Do Peer Preferences Matter in School Choice Market Design? Theory and Evidence

Natalie Cox, Ricardo Fonseca and Bobby Pakzad-Hurson

No 16544, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Can a centralized school choice clearinghouse generate a stable matching if it does not allow students to express their preferences over both programs and peers? Theoretically, we show that a stable matching exists with peer preferences under mild conditions, but finding one via canonical mechanisms is unlikely. We show that increasing transparency about the previous cohort of students enrolling at each program induces a tâtonnement process wherein the distributions of former student types play the role of prices. We theoretically model this process and develop a test for match stability. We implement this test empirically in the college admissions market in New SouthWales (NSW), Australia, where we find evidence of preferences over relative peer ability. We show that the NSW market fails to converge to stability over time. We propose a new mechanism that improves upon the current design, and we show that this mechanism generates a stable matching in the NSW market.

Keywords: Market design; College admissions; Peer preferences (search for similar items in EconPapers)
JEL-codes: C78 D47 I21 (search for similar items in EconPapers)
Date: 2022-05
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