Assignment mechanisms: common preferences and information acquisition

TL;DR

This paper examines how costly information acquisition affects matching outcomes in applicant-school settings, revealing that incentive structures influence welfare and policy effectiveness.

Contribution

It introduces a model analyzing costly information acquisition in matching mechanisms, highlighting the impact on welfare and policy design.

Findings

Applicants acquire less information under strategy-proof mechanisms

Ignoring information incentives can misjudge welfare outcomes

Policies like affirmative action can improve welfare when information costs are considered

Abstract

I study costly information acquisition in a two-sided matching problem, such as matching applicants to schools. An applicant's utility is a sum of common and idiosyncratic components. The idiosyncratic component is unknown to the applicant but can be learned at a cost. When applicants are assigned using an ordinal strategy-proof mechanism, too few acquire information, generating a significant welfare loss. Affirmative action and other realistic policies may lead to a Pareto improvement. As incentives to acquire information differ across mechanisms, ignoring such incentives may lead to incorrect welfare assessments, for example, in comparing a popular Immediate Assignment and an ordinal strategy-proof mechanism.