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A Pigouvian Approach to Congestion in Matching Markets

Yinghua He and Thierry Magnac ()

No 11967, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Recruiting agents, or "programs" costly screen “applicants” in matching processes, and congestion in a market increases with the number of applicants to be screened. To combat this externality that applicants impose on programs, application costs can be used as a Pigouvian tax. Higher costs reduce congestion by discouraging applicants from applying to certain programs; however, they may harm match quality. In a multiple-elicitation experiment conducted in a real-life matching market, we implement variants of the Gale-Shapley Deferred-Acceptance mechanism with different application costs. Our experimental and structural estimates show that a (low) application cost effectively reduces congestion without harming match quality.

Keywords: Gale-Shapley Deferred Acceptance Mechanism; costly preference formation; screening; stable matching; congestion; matching market place (search for similar items in EconPapers)
JEL-codes: D78 D47 D50 D61 I21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-des, nep-exp and nep-gth
Date: 2018-11
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