The Walras-Bowley Lecture: Fragmentation of Matching Markets and How Economics Can Help Integrate Them, by Kamada, Kojima, and Matsushita

 Fuhito Kojima's 2023 Walras Bowley Lecture has just been uploaded to arxiv, and it looks to be an exciting contribution to the market design literature.  It considers the fact that administrative boundaries cause many markets to be fragmented, and hence less thick than they might otherwise be, and how some of the resulting efficiency loss can be recovered.

The Walras-Bowley Lecture: Fragmentation of Matching Markets and How Economics Can Help Integrate Them, by Yuichiro Kamada, Fuhito Kojima, and Akira Matsushita
(August 27, 2025) 

Below is the abstract and opening paragraphs. 

"Abstract
Fragmentation of matching markets is a ubiquitous problem across countries and across applications. In order to study the implications of fragmentation and possibilities for integration, we first document and discuss a variety of fragmentation cases in practice such as school choice, medical residency matching, and so forth. Using the real-life dataset of daycare matching markets in Japan, we then empirically evaluate the impact of interregional transfer of students by estimating student utility functions under a variety of specifications and then using them for counterfactual simulation. Our simulation compares a fully integrated market and a partially integrated one with a “balancedness” constraint—for each region, the inflow of students from the other regions must be equal to the outflow to the other areas. We find that partial integration achieves 39.2 to 59.6% of the increase in the child welfare that can be attained under full integration, which is equivalent to a 3.3 to 4.9% reduction of travel time. The percentage decrease in the unmatch rate is 40.0 to 52.8% under partial integration compared to the case of full integration. The results suggest that even in environments where full integration is not a realistic option, partial integration, i.e., integration that respects the balancedness constraint, has a potential to recover a nontrivial portion of the loss from fragmentation.

Introduction
Many of the most consequential markets in our societies—school admissions, medical resident matching, daycare placements, kidney exchanges—are matching markets, where centralized mechanisms are often employed to improve efficiency and fairness. Over the past several decades, the field of market design has made substantial progress in developing and implementing such mechanisms (e.g., Abdulkadiroğlu and Sönmez (2003) for school choice, Roth (1984) for medical residency matching, Kamada and Kojima (2023) for daycare placements, and Roth et al. (2004) for kidney exchanges). In doing so, it has led economists to assume a dual role as both analysts and engineers (Roth, 2002).

How are those sophisticated mechanisms implemented in practice? Typically, these mechanisms are run by individual cities, districts or institutions, and the implementation is usually confined to narrowly defined administrative or political boundaries. These boundaries can reflect long-standing institutional arrangements, localized funding responsibilities, or jurisdictional autonomy. Regardless of their origins, the consequence is that agents on different sides of a boundary are matched as if they participated in entirely separate markets—even when they live mere blocks apart.

The aim of this paper is to study the implications of fragmentation of matching markets and possibilities for integration. To do so, we begin by offering a detailed descriptive account of fragmented matching markets in practice. We observe that fragmentation is prevalent across a variety of settings globally, from public school systems and childcare allocation to medical residency assignments, foster care placements, and public housing markets, among others. We highlight how institutional boundaries and localized governance create fragmented, parallel markets. Each case underscores the potential inefficiencies due to constrained choices caused by fragmentation, motivating our inquiry into mechanisms that can integrate markets effectively.

Against this background, we then investigate public daycare assignment in Japan in detail. "