Top trading cycles 'respect improvements' by rewarding agents whose endowments become more desirable

 Here's a wide-ranging paper that explores the way the Top Tradinig Cycles (TTC) algorithm 'respects improvements' by rewarding an agent whose endowment becomes more desirable.

Biró, Péter, Flip Klijn, Xenia Klimentova, and Ana Viana. "Shapley–Scarf Housing Markets: Respecting Improvement, Integer Programming, and Kidney Exchange." Mathematics of Operations Research (2023).

"Abstract: In a housing market of Shapley and Scarf, each agent is endowed with one indivisible object and has preferences over all objects. An allocation of the objects is in the (strong) core if there exists no (weakly) blocking coalition. We show that, for strict preferences, the unique strong core allocation “respects improvement”—if an agent’s object becomes more desirable for some other agents, then the agent’s allotment in the unique strong core allocation weakly improves. We extend this result to weak preferences for both the strong core (conditional on nonemptiness) and the set of competitive allocations (using probabilistic allocations and stochastic dominance). There are no counterparts of the latter two results in the two-sided matching literature. We provide examples to show how our results break down when there is a bound on the length of exchange cycles. Respecting improvements is an important property for applications of the housing markets model, such as kidney exchange: it incentivizes each patient to bring the best possible set of donors to the market. We conduct computer simulations using markets that resemble the pools of kidney exchange programs. We compare the game-theoretical solutions with current techniques (maximum size and maximum weight allocations) in terms of violations of the respecting improvement property. We find that game-theoretical solutions fare much better at respecting improvements even when exchange cycles are bounded, and they do so at a low efficiency cost. As a stepping stone for our simulations, we provide novel integer programming formulations for computing core, competitive, and strong core allocations."

Here is their literature review:

"The nonemptiness of the core is proved in Shapley and Scarf [47] by showing the balancedness of the corresponding nontransferable utility game and also in a constructive way by showing that David Gale’s famous top trading cycles (TTC) algorithm always yields competitive allocations. Roth and Postlewaite [40] later show that, for strict preferences, the TTC results in the unique strong core allocation, which coincides with the unique competitive allocation in this case. However, if preferences are not strict (i.e., ties are present), the strong core can be empty or contain more than one allocation, but the TTC still produces all competitive allocations. Wako [50] shows that the strong core is always a subset of the set of competitive allocations. Quint and Wako [39] provide an efficient algorithm for finding a strong core allocation whenever there exists one. Their work is further generalized and simplified by Cechlárová and Fleiner [19], who use graph models. Wako [52] shows that the set of competitive allocations coincides with the core based on an antisymmetric weak domination concept, which we refer to as Wako-core in this paper. This equivalence is key for our extension of the definition of competitive allocations to the case of bounded exchange cycles.

1.2.2. Respecting Improvement.

"For Gale and Shapley’s [23] college admissions model, Balinski and Sönmez [11] prove that SOSM respects improvement of student’s quality. Kominers [29] generalizes this result to more general settings. Balinski and Sönmez [11] also show that SOSM is the unique stable mechanism that respects improvement of student quality. Abdulkadiroğlu and Sönmez [3] propose and discuss the use of TTC in a model of school choice, which is closely related to the college admissions model. Abdulkadiroğlu and Che [2] state and Hatfield et al. [25] formally prove that the TTC mechanism respects improvement of student quality.

"Hatfield et al. [25] also focus on the other side of the market and study the existence of mechanisms that respect improvement of a college’s quality. The fact that colleges can match with multiple students leads to a strong impossibility result: they prove that there is no stable or Pareto-efficient mechanism that respects improvement of a college’s quality. In particular, the (Pareto-efficient) TTC mechanism does not respect improvement of a college’s quality.

"In the context of KEPs with pairwise exchanges, the incentives for bringing an additional donor to the exchange pool was first studied by Roth et al. [42]. In the model of housing markets their donor-monotonicity property boils down to the respecting improvement property. They show that so-called priority mechanisms are donor-monotonic if each agent’s preferences are dichotomous, that is, the agent is indifferent between all acceptable donors. However, if agents have nondichotomous preferences, then any mechanism that maximizes the number of pairwise exchanges (so, in particular, any priority mechanism) does not respect improvement. This can be easily seen by means of Example 4 in Section 3.3.

#######

See also

The core of housing markets from an agent’s perspective: Is it worth sprucing up your home?  by Ildiko Schlotter, , Peter Biro, and Tamas Fleiner

Abstract. We study housing markets as introduced by Shapley and Scarf (1974). We investigate the computational complexity of various questions regarding the situation of an agent a in a housing market H: we show that it is NP-hard to find an allocation in the core of H where (i) a receives a certain house, (ii) a does not receive a certain house, or (iii) a receives a house other than her own. We prove that the core of housing markets respects improvement in the following sense: given an allocation in the core of H where agent a receives a house h, if the value of the house owned by a increases, then the resulting housing market admits an allocation in its core in which a receives either h or a house that a prefers to h; moreover, such an allocation can be found efficiently. We further show an analogous result in the Stable Roommates setting by proving that stable matchings in a one-sided market also respect improvement.

Homelessness and fentanyl, in Oregon and California

 Both the criminal justice system and the harm reduction movement seem to be facing an intractable problem with fentanyl and homelessness.  (We lost the war on drugs, but surrender isn't working either.)

Here are two NYT stories, from Oregon and California.

The Struggle to Save Portland, Oregon. The city has long grappled with street homelessness and a shortage of housing. Now fentanyl has turned a perennial problem into a deadly crisis and a challenge to the city’s progressive identity.  By Michael Corkery

"This city of 635,000 ...  has long grappled with homelessness. But during the pandemic this perennial problem turned into an especially desperate and sometimes deadly crisis that is dividing Portland over how to fix it.

...

"In 2022, Portland experienced a spate of homicides and other violence involving homeless victims that rattled many in the community.

...

"The search for answers points in many directions — to city and county officials who allowed tents on the streets because the government had little to offer in the way of housing, to Oregon voters who backed decriminalizing hard drugs and to the unrest that rocked Portland in 2020 and left raw scars.

"But what has turbocharged the city’s troubles in recent years is fentanyl, the deadly synthetic drug, which has transformed long standing problems into a profound test of the Portland ethos.

"Outreach workers in Portland say rampant fentanyl use has coincided with the increasing turmoil among many homeless residents.

"Doctors who care for people living on the streets say fentanyl addiction is proving harder to treat than many other dependencies."

***********

Homeless Camps Are Being Cleared in California. What Happens Next? One of the state’s largest homeless encampments was recently shut down in Oakland, but that didn’t stop the problem of homelessness.  By Livia Albeck-Ripka

"The evictions have brought into sharp relief one of the most intractable challenges for American cities, particularly those in California. As homelessness has surged, more people have congregated in large encampments for some semblance of security and stability. But such sites are often unsanitary and dangerous, exhausting neighbors and the owners of nearby businesses.

"What happens after the closure of Wood Street and other camps in California will serve as the latest test of how effectively the state is addressing homelessness. Nearly half of the nation’s unsheltered population — those who sleep on the streets, in tents, in cars or in other places not intended for human habitation — resides in California, according to last year’s federal tally of homelessness. The state makes up about 12 percent of the country’s overall population.

"In California, Democratic leaders who previously tolerated homeless camps have lost their patience for the tent villages and blocks of trailers that proliferated during the pandemic.

"Governor Newsom has helped clear homeless camps himself and has told mayors he was trying to set an example. San Diego recently banned encampments on public property. And Karen Bass, the mayor of Los Angeles, has moved more than 14,000 homeless people into temporary housing since taking office in December, her office said last month.

...

"Community cabins and safe camping sites usually provide only temporary shelter, falling short of the permanent housing that is considered ideal. But they seem to be the best that California can do, with a severe housing shortage and high costs. Despite the state’s spending of more than $30 billion since 2019 on housing-related programs, the homeless population there has continued to grow.

“This is a very difficult population to serve, with very complex needs. And if we can bring someone inside even for a little bit, that’s a victory for that person,” said Jason Elliott, the deputy chief of staff for Governor Newsom. “We may not have permanent housing stick the first time, or the fourth time or the fifth time, but we’re going to keep trying.”

"According to a September audit of Oakland’s homelessness services, close to half of the people housed in community cabins ended up back on the street in the 2020-21 fiscal year."

***********

Earlier:

Friday, July 14, 2023

Harm reduction is not a panacea: drug use and drug policy in Portugal, and San Francisco

Vacancy chains in urban housing

 Vacancy chains occur not just in labor markets, but also in housing markets. (Earlier this week I wrote about housing chains for hermit crabs that result from evictions.)  A vacancy chain in a housing market can be thought of as a moving chain: someone moves into a vacant house or apartment (perhaps a newly constructed one), and someone else moves into the home they vacated, and so on, until the chain ends when a person who was in some different market (e.g. in rental housing, or in a distant location) moves into the last identifiable home in the chain.

Here are two papers that explore what happens when newly constructed housing is relatively expensive. They find that the chain often reaches much more moderately priced housing, i.e. adding to the stock of expensive housing also makes more affordable, existing housing available to new occupants.

The first paper draws on data from a dozen American cities (from Atlanta to San Francisco):

The effect of new market-rate housing construction on the low-income housing market, by Evan Mast, Journal of Urban Economics, Available online 27 July 2021, https://doi.org/10.1016/j.jue.2021.103383

Abstract: I illustrate how new market-rate construction loosens the market for lower-quality housing through a series of moves. First, I use address history data to identify 52,000 residents of new multifamily buildings in large cities, their previous address, the current residents of those addresses, and so on for six rounds. The sequence quickly reaches units in below-median income neighborhoods, which account for nearly 40 percent of the sixth round, and similar patterns appear for neighborhoods in the bottom quintile of income or percent white. Next, I use a simple simulation model to roughly quantify these migratory connections under a range of assumptions. Constructing a new market-rate building that houses 100 people ultimately leads 45 to 70 people to move out of below-median income neighborhoods, with most of the effect occurring within three years. These results suggest that the migration ripple effects of new housing will affect a wide spectrum of neighborhoods and loosen the low-income housing market.

%%%%%%%%%%%

A more recent working paper draws on data from metropolitan Helsinki and reaches similar conclusions:

Bratu, Cristina and Harjunen, Oskari and Saarimaa, Tuukka, City-wide Effects of New Housing Supply: Evidence from Moving Chains (August 31, 2021). VATT Institute for Economic Research Working Papers 146, Available at SSRN: https://ssrn.com/abstract=3929243 or http://dx.doi.org/10.2139/ssrn.3929243

Abstract: We study the city-wide effects of new, centrally-located market-rate supply using geo-coded total population register data from the Helsinki Metropolitan Area. The supply of new market rate units triggers moving chains that quickly reach middle- and low-income neighborhoods and individuals. Thus, new market-rate construction loosens the housing market in middle- and low-income areas even in the short run. Market-rate supply is likely to improve affordability outside the sub-markets where new construction occurs and to benefit low-income people.

**********

Earlier:

Vacancy chains in housing for hermit crabs   

Blum, Y., A.E. Roth, and U.G. Rothblum "Vacancy Chains and Equilibration in Senior-Level Labor Markets," Journal of Economic Theory, 76, 2, October 1997, 362-411.

Realtors still have a few tricks up their sleeves--"Whisper listings"

 It once looked as if the growth of the internet, and increased access to home listing databases, would substantially weaken the grip of licensed Realtors on the residential housing market in the U.S. Those predictions proved premature: Realtors have kept a very large market share, while earning high fees as prices rise (based on a percentage of the sales price).  

The WSJ has part of the ongoing story:

In Tight Housing Market, Thousands of Homes Are Reserved for Certain Buyers. ‘Whisper listings,’ made directly to select customers, are growing at a time when housing inventory is near record lows  By Nicole Friedman

"In the vast majority of transactions, an agent lists a home for sale on a local database and markets the property widely to drum up interest and get the best price. But in certain cases, a broker will show an unlisted property to a small circle of potential buyers more exclusively, often in hope of getting a deal done quickly.

"These private sales are known as pocket listings, or whisper listings. They have been around for many years. But they are on the rise now even though the National Association of Realtors adopted a rule last year aimed at discouraging their use following complaints from some of its members.

"The new NAR policy requires agents to add listings to their local database within a business day of publicly advertising the listing. But there is a notable exemption: Listings can still be kept off the database if they are only shared within one brokerage, called an “office exclusive.”

The unsharing economy: part time gig evicting people from their apartments

 Vice.com has the story:

Gig Economy Company Launches Uber, But for Evicting People--A company called Civvl says evicting people is the "FASTEST GROWING MONEY MAKING GIG DUE TO COVID-19."  By Ashwin Rodrigues

"In its Craigslist ads, posted across the country, Civvl explains the opportunity plainly: "There is plenty of work due to the dismal economy."

"Unemployment is at a record high and many cannot or simply are not paying rent and mortgages," the ads state. "We are being contracted by frustrated property owners and banks to secure foreclosed residential properties."

Civvl aims to marry the gig economy with the devastation of a pandemic, complete with signature gig startup language like "be your own boss," and "flexible hours," and "looking for self-motivated individuals with positive attitudes:" "FASTEST GROWING MONEY MAKING GIG DUE TO COVID-19," its website says. "Literally thousands of process servers are needed in the coming months due courts being backed up in judgements that needs to be served to defendants."

...

"The company, at first glance, appears to be some kind of _Nathan For You-_esque prank: siccing precarious gig jobs onto vulnerable people. But Civvl is connected to a larger—and real—gig economy company called OnQall, which describes itself as an app that provides "on-demand task services to non-urban communities beyond main city areas." OnQall is the developer behind other, more believable TaskRabbit-esque apps, like LawnFixr, CleanQwik, and MoveQwik. Given the fact that Civvl is advertising all over the country and that OnQall, though not popular, does exist, it seems as though Civvl actually is an attempt to simplify the process of evicting people who cannot pay their rent during a pandemic.

...

"There is a federal ban on evictions, declared by the CDC, but landlords are still attempting to press on. There is a penalty for violating the ban, which can include a combination of fines and jail time. Civvl did not respond to a question about how the company ensures evictions are legal, though based on the Terms of Service, it appears to pass all risk onto the companies using its platform, stating that it simply "provides lead generation to independent contractors," and does not actually carry out the work itself.  

HT: Sandro Ambuehl

Nesterly: matching student tenants to empty-nesters

Helping Boomers Find Millennial Roommates
LINDA POON  JUL 1, 2017
In a college town, students and older homeowners have a lot to offer each other. That’s why two urban planners built an app to bring them together.
********

Here's the app: Nesterly.
"On any given night, more than 50 million bedrooms sit empty across the U.S. Many of these spare rooms belong to older homeowners whose large houses have become a burden as they age. At the same time, millions of young renters struggle to afford the high prices in areas near schools and jobs. nesterly targets both of these issues by connecting older people with extra rooms to those seeking affordable rents through unique task-housing arrangements. Renters can now pay part of their rent by helping around the house, and owners gain stability, security, and support to stay in their homes."

House swapping in the UK

Neil Thakral writes:

Regarding ... public-housing residents switching units, I mentioned that this happens in the UK (https://www.gov.uk/apply-swap-homes-council). 

["You can swap your council or housing association home with another tenant if you follow certain rules and get permission from your landlord. This is often called ‘mutual exchange’."]

I thought there was something like this on Al's blog, and I found posts on buying/selling private homes (http://marketdesigner.blogspot.com/2009/01/house-swaps.html) and trading homes for vacations (http://marketdesigner.blogspot.com/2012/04/home-exchanges.html).

Here is a recent article: http://www.yorkshireeveningpost.co.uk/news/leeds-is-revealed-as-the-house-swapping-capital-of-the-uk-1-8028444

["The House Exchange website automatically matches house-seekers with properties that meet their needs. Once a social housing provider signs up with House Exchange, all its tenants can use the service for free. In Leeds, 100 per cent of social landlords have signed up, meaning all 102,000 social households across the city are able to use the service."]

and an example of a six-way swap from a while back:  http://www.mirror.co.uk/money/personal-finance/we-swapped-homes---get-moving-if-you-358806

Here are two platforms that seem to arrange this:

- http://www.houseexchange.org.uk

- https://www.homeswapper.co.uk

Matching refugees and landlords in Sweden, by Tommy Andersson and Lars Ehlers

 After refugees have found a country of asylum, there's still work to do. Here's some help on how to do it in Sweden:

Assigning Refugees to Landlords in Sweden:Stable Maximum Matchings
 Tommy Andersson and Lars Ehlers
June 2016

Abstract In Sweden, asylum seekers are either deported or granted a residence permit. Refugee families with a residence permit are assigned to the different local municipalities. Since almost all accommodation options are exhausted in Sweden, households in some municipalities are asked to state their willingness to accommodate refugee families. In line with the European NGO “Refugees Welcome”, a refugee family and a landlord (household) are mutually acceptable if they have a language in common and if the number of offered beds of the household exceeds the number of beds needed by the refugee family. This paper proposes an algorithm that finds a maximum matching (filling the maximal number of beds) which in addition is stable.


Theorem 1. For any profile R, there exists a stable maximum matching

Gazumping in England: repugnant and soon to be illegal?

When does a contract to sell a home become binding? That may be about to change in England. The Telegraph has the story.
Relief for home buyers as the Government may ban 'gazumping' 

"Gazumping could be banned by the Government, as it has emerged that officials have held private meetings with industry to discuss bringing forward the point at which house sales become legal, in line with Scotland.

"The radical move would prevent millions of British housing sales falling through as 18pc, or around 200,000 transactions collapse each year.

"A major reason is a plague of buyers outbidding others who have already put down an offer, a practice commonly known as "gazumping".

"It causes frustration and disappointment for buyers who think they have secured their dream home, only to find they lose it overnight to someone with more cash. It also routinely leaves frustrated would-be-buyers paying for bills for surveying and legal fees which can run into thousands of pounds, providing a further kick in the teeth.
...
"The meeting was used in part to discuss the idea of introducing to Britain the system which already exists in Scotland and in other countries in Europe, under which property sales are legally binding at the point where an offer is accepted by the buyer.

"At present deals made in Britain are only binding once the contracts have been exchanged, giving buyers with big deposits ample chance to "gazump".

While this Scottish-style system could make life much easier for buyers of British homes, experts predicted it would be very unpopular with sellers and could even put them off moving house. "

A Dutch exchange for rental housing leases

A Dutch site that calls itself the largest home exchange site in the Netherlands (De grootste woningruilsite van Nederland) seems to offer exchanges of leases, i.e. mutual sublets. with three way exchanges also a possibility.

Housing markets through thick and thin (and back again)

A paper in the December AER discusses seasonality in the housing market: when the market is thick, better match quality raises prices...


Hot and Cold Seasons in the Housing Market
By L. Rachel Ngai and Silvana Tenreyro

"Every year housing markets in the United Kingdom and the United
States experience systematic above-trend increases in prices and
transactions during the spring and summer (“hot season”) and
below-trend falls during the autumn and winter (“cold season”).
House price seasonality poses a challenge to existing housing models.
We propose a search-and-matching model with thick-market effects.
In thick markets, the quality of matches increases, rising buyers’ willingness
to pay and sellers’ desire to transact. "

Real estate ads in Britain: "no upward chain"

Some time ago I blogged about how transactions in tight real estate markets might produce chains (or even cycles) of transactions, in which some owners might have to buy a house before they could vacate theirs (and in slow markets in which some owners might have to sell their house before they could buy one).

It turns out that right now in England, a not-so-rare feature of ads to sell houses is the phrase "No upward chain." What it means, apparently, is that this house is available to be bought/sold right now, without the owner having to wait to buy a new house before closing on the deal.

HT: Brit Grosskopf

The internet and the market for summer rental housing

Along with all the first order effects of the internet, it has had big effects on small markets, like secondhand books and, it turns out, vacation rentals: The Summer Rental Rat Race.

"as more vacation-home owners have entered the rental business, with help from a growing collection of Web sites that make it easy to post listings, the competition to attract tenants has become fierce.

"“Real estate agents who want to sell you a house will tell you that you can make money off it,” Mr. Johnston said. “Well, I did 20 years ago, but I don’t anymore.”

"There is often money to be made in vacation homes, but as the number of listing services has increased, so have the number of properties posted for rent. For example, HomeAway.com, one of the most popular sites, says it has more than 300,000 rentals worldwide.

"Numbers like that are forcing casual landlords to learn how to make their homes appear higher in search results, to track prices by monitoring their neighbors’ listings, and to deal with customer-service headaches like a negative Yelp-style review from renters.
...
"HomeAway listed 304 homes for rent in the Catskills in 2008; now it has roughly 520 homes available. Along the Jersey Shore over the same time frame, listings increased to 2,200 from about 700; in the Hamptons they jumped to 750 from 270.
...
"HomeAway owns another popular Web site, VRBO, which stands for “vacation rentals by owner.” But at these and other HomeAway sites, homes posted by professional property managers now account for 27 percent of the listings.
...
“We see that as a net benefit for our travelers,” said Jon Gray, HomeAway’s vice president for North America. “It gives more choice to them.”
...
"It also creates more competition for individual homeowners, who themselves have more rental listing services to choose from. The options include global players like HomeAway and FlipKey, which is owned by TripAdvisor, and specialized sites like Gite.com, which lists holiday homes in France."

Home exchanges

In the WSJ, a retired California couple discuss the (approaching three dozen) home exchanges they have done, bartering a stay at their San Diego condo for visits of a few weeks to a month all over the world, via two networks, homeexchange.com and homelink.org.

"Exchanging homes involves some negotiating. Your leverage depends on the desirability of the home you have to exchange. In the U.S., New York, San Francisco and Washington, D.C., are favorites of international exchangers. After that, there is a second tier of cities, which includes San Diego.

"(One tricky area in negotiations: whether to exchange cars. Our preference is to rely on local transportation. Some cities, like Paris and London, have great public transportation. Unfortunately, San Diego doesn't, and our exchange partners feel strongly that we need to exchange cars. We've done so about half the time.)
...
"On each Internet site, we have a page with photos of our home, information about San Diego and ourselves, and details about when, where and with whom we want to exchange. Once we make contact with a potential partner, we discuss details of dates, number of people, transportation, etc. On average, an exchange takes about 20 emails and an occasional phone call to work out all the arrangements.
...
"We are often asked if we have any problems with our exchanges. We do. The biggest problem is cancellations. Since our first choice is to exchange with other older adults, unexpected medical problems can be an issue. With younger exchangers, you can encounter job or financial problems. In a few cases, my guess is that people cancel because they get a better offer—but they never admit that.

"We have had seven cancellations in connection with our 32 exchanges. Fortunately, all except one were early enough that we hadn't made plane reservations and could arrange alternative exchanges."

John Campbell on Mortgage Market Design

John Campbell writes about Mortgage Market Design

"Although the US has roughly average levels of homeownership (67%) and mortgage debt
(72% of GDP), it is unusual in two other respects. Figure 3 plots the average number of
years that a mortgage carries a fixed rate. The lowest values (around 1 year) are in southern European countries such as Portugal, Spain, and Italy, where adjustable-rate mortgages predominate. The UK and Ireland similarly rely heavily on adjustable-rate mortgages.The average fixed-rate period is 5 years in Canada, 7-10 years in Belgium, France, and Germany, almost 20 years in Denmark, and 27 years in the US reflecting a roughly 90% market share for 30-year nominal fixed-rate mortgages. These instruments, which are taken for granted in the US, are anomalous within the global mortgage system.

"Figure 4 plots an index of government participation in housing finance, constructed by
the IMF (2011), against the homeownership rate. The IMF index combines information on subsidies to home purchases, government funding or guarantees for mortgage loans, preferential tax treatment for mortgage interest or capital gains on housing, and the existence of a dominant state-owned mortgage lender. The figure shows that US housing policy is highly interventionist, more so than any other country illustrated except Singapore. The high value of the government participation index for the US results from subsidies to low and middle income homebuyers, subsidized mortgage guarantees by the government sponsored entities (GSEs), and favorable tax treatment of mortgage borrowing and housing capital gains. The main stated goal of much US housing policy is to increase the homeownership rate, but as previously noted the US has only average homeownership, and more generally there is only a very weak positive cross-country correlation between housing market intervention and
homeownership."
...
"I argue that there is a legitimate public interest in a stable, efficient mortgage system and call for deliberate experimentation with mortgage market design. Although our theoretical understanding of mortgage markets is still quite weak relative to the theory that underpins classic applications of market design (to auctions and matching problems, for example), financial theory and theoretically grounded empirical research will be important for this enterprise. Thus mortgage research offers financial economists an exciting opportunity to contribute to the well-being of society.

Time share markets for vacation housing

Ernan Haruvy and Yu Wang explore some market design issues that arise in vacation house exchange, theoretically and experimentally, in their paper Tiers in Consumer Fractional Ownership Markets. Their idea is that unless the market maker restricts the trading rights of owners of undesirable properties, the market may eventually suffer from a form of unraveling in which people buy inexpensive properties in an attempt to gain access to more expensive properties.

Here's the abstract:
"In consumer fractional ownership markets such as timesharing in vacation homes and sharing programs for luxury products, consumers purchase a share in a property and can later exchange its usage right with other owners through secondary matching markets. In such programs, consumers may attempt to game the system by purchasing inexpensive low quality shares and trading up afterwards. Such behavior may cause the collapse of the primary sales market. We investigate a tiered structure that restricts trading up. The analysis focuses on two commonly used matching mechanisms in the marketplace – Deposit First and Request First mechanisms. In laboratory experiments we find that when the matching market does not have a tiered structure, the Request First mechanism performs significantly worse than the Deposit First mechanism, whereas the tiered matching structure performs equally well under both mechanisms. Consistent with the theory, tiered matching that restricts upgrading is shown to simultaneously restore primary sales and facilitate exchanges among owners. A change in market structure requires some adjustment, but over time participants learn to adopt theoretically optimal strategies. Entry into matching markets is below theoretical predictions and this is shown to be partly due to risk aversion."

They describe the underlying marketplace institutions:
"In this industry, households purchase timeshare properties and can then exchange their usage rights in a one-to-one matching market. Some of the matching markets are run by property developers themselves (e.g., Timbers Resorts). One can think of these companies as vertically-integrated players in both the primary sales market and the secondary matching market. Some other matching markets are operated by third-party match-making companies such as Resort Condominium International.  These match-making firms do not build resort properties but create platforms for property owners to make exchanges. With either type of market maker (vertically-integrated property developers or third-party match-making companies), to make exchanges timeshare owners typically search in a depository of properties called a space bank. The space bank can be seen as a match-making firm’s inventory of properties. Owners can “deposit” their property into the space bank and “withdraw” a different property from it. Thus, the space bank is the key feature of the one-sided matching market under investigation, as it serves the important purpose of facilitating exchanges among the owners."
...
"Two matching mechanisms have been widely adopted in the timeshare matching market (Wang and Krishna 2006): the Deposit First (DF) mechanism and the Request First (RF) mechanism. To initiate an exchange in a DF market, households must first deposit their own properties into the space bank. In other words, the household cannot inspect the space bank until it has given up the usage right of its own property. Thus, successful withdrawal is not guaranteed by the company, as one may end up with a worse property than her original one. In fact, one of the main complaints about the DF mechanism is the risk of becoming worse-off (ex post) as a result of exchanges. On the other hand, in an RF market households deposit their own properties only after they have withdrawn a preferred property from the space bank. If there is no good alternative in the space bank, households can choose to keep their original properties."

They also consider the connection to kidney exchange...

Judd Kessler on the roommate problem in 2002

In response to my recent posts on roommate matching for college students, Judd Kessler points me to a newspaper column he wrote in 2002, on roommates, peer effects, and the Harvard housing system: More Than A Bunkmate.

Matchmaking at Harvard, the roommate problem

The Crimson reports, In Choosing Roommates, Deans Become Matchmakers.

"The day is June 10, and Resident Dean of Freshmen Sue Brown embarks upon what will be a five-week quest: sorting 398 first-years into rooms in Grays, Matthews, and Weld Halls.


"Much of this task remains the same as it has been in years past. She sorts freshmen largely by hand, thoroughly reading incoming freshmen’s responses to roommate questionnaires. During the process, her floor is covered with a mass of paper that is eventually divided into nine distinct piles—one of the early steps in the lengthy matchmaking process.

"But in the midst of that process, technology rears its head. In Adobe Acrobat, Brown categorizes freshmen, using colors to sort the incoming students by geography and stamping the freshmen’s rooming surveys with various logos made in Photoshop. A cartoon of a chess piece marks a chess player. A compass is reserved for the “curious and adventurous” freshman, Brown says.

"Emblazoned with colors and cartoons, the surveys are printed out and scattered on a floor in Brown’s residence in Weld Hall. From there, she divides the students into three categories based on students’ self-reported levels of sociability.

"Social tendencies are one of the most important factors in determining roommate compatibility “because it’s going to be something that comes between roommates before they even meet each other,” she says.

"But other factors matter as well, Brown adds. From the sleeping habits freshmen keep and the sports they play, to the neatness they maintain and the number of roommates they want, the resident deans take into account a slew of determinants of each first-year’s personality.

"Some factors, like musical tastes, are often stronger predictors of compatibility than others, according to Brown.
...
"Resident deans often try to place local freshmen with those from outside the area, especially international students for whom going home during vacations is more difficult, according to Dean of Freshmen Thomas A. Dingman ’67.
...
"Every year, a small margin of freshmen—”about half a dozen”—are switched out of their original suites after approaching the FDO, Dingman says. Many more choose to block with and live with others in future years.

...
"After organizing the rooms, the deans turn to assembling the entryways.
“You want it to be a dIverse group, a microcosm of the freshman class,” Brown says.
But at the same time, the entryway can’t be so diverse that a student feels isolated. For example, the FDO tries to avoid placing only one international student in any entryway, Brown says. She also avoids putting two students from the same varsity sport or the same high school in a single entryway."

Harvard housing

Harvard sophomores, juniors and seniors are assigned housing randomly, with some details that require strategic thinking. The objective seems to be to make the Harvard undergraduate houses fairly homogeneous (while allowing friends to form small groups). But it wasn't always so.

An unpublished paper that recounts some of the history, and the previous market designs for housing allocation, is THE HARVARD HOUSING LOTTERY: RATIONALITY AND REFORM, by Susan M. Collins and Kala Krishna

It's an interesting read, and an important kind of market design paper. Rules are data, and histories of rule changes, and how they succeed and fail, are often one of the clearest windows through which to view the obstacles that allocation processes have to overcome to work well.

Real estate; disaggregating a bundle of services

There are cracks beginning to show in the way real estate is sold. For a long time, the only realistic option for selling a home was to employ a full service realtor, who sells a whole package of services bundled together, and charges five or six percent of the selling price of the house.

But as the internet has eroded the Multiple Listing Service monopoly on home listings, it is beginning to be possible for sellers to put their own homes on the market, with the assistance of a la carte services from realtors.

One such service in the Boston area, http://eplacehomes.com/ offers just such an a la carte "menu of services". It will be interesting to see where this leads, in a market whose standard, full service contract, with a 6% realtor's commission, became strained as house prices rose into seven figures in many communities. (See this earlier post on broker rebates to buyers.)