Behavioral market design (in the JEP)

 The Fall 2024 Journal of Economic Perspectives has three papers on behavioral market design:

Symposium: Behavioral Incentive Compatibility

6.	Evaluating Behavioral Incentive Compatibility: Insights from Experiments
	David Danz, Lise Vesterlund, and Alistair J. Wilson
	Full-Text PDF | Additional Information

 

Incentive compatibility is core to mechanism design. The success of auctions, matching algorithms, and voting systems all hinge on the ability to select incentives that make it in the individual's interest to reveal their type. But how do we test whether a mechanism that is designed to be incentive compatible is actually so in practice, particularly when faced with boundedly rational agents with nonstandard preferences? We review the many experimental tests that have been designed to assess behavioral incentive compatibility, separating them into two categories: indirect tests that evaluate behavior within the mechanism, and direct tests that assess how participants respond to the mechanism's incentives. Using belief elicitation as a running example, we show that the most popular elicitations are not behaviorally incentive compatible. In fact, the incentives used under these elicitations discourage rather than encourage truthful revelation.

 

7.	Behavioral Incentive Compatibility and Empirically Informed Welfare Analysis: An Introductory Guide
	Alex Rees-Jones
	Full-Text PDF | Additional Information

A growing body of research conducts welfare analysis that assumes behavioral incentive compatibility—that is, that behavior is governed by pursuit of incentives conditional on modeled imperfections in decision-making. In this article, I present several successful examples of studies that apply this approach and I use them to illustrate guidance for pursuing this type of analysis.

 

8.	Designing Simple Mechanisms
	Shengwu Li
	Full-Text PDF | Additional Information

It matters whether real-world mechanisms are simple. If participants cannot see that a mechanism is incentive-compatible, they may refuse to participate or may behave in ways that undermine the mechanism. There are several ways to formalize what it means for a mechanism to be "simple." This essay explains three of them, and suggests directions for future research.

Gaming a bike sharing algorithm

 Jacob Leshno points out this NYT story. He writes "The gist of it is that Citi bike pays to deliver bikes to stations with shortages, and someone figured they could make money by creating artificial shortages."

The Hustlers Who Make $6,000 a Month by Gaming Citi Bikes. The bike-sharing program rewards users who help redistribute bikes around New York City. A few riders have figured out how to turn that into profit.  By Christopher Maag (Christopher Maag spent several days in Midtown Manhattan running behind Bike Angels.)

"By monitoring a map of stations on Lyft’s app, they noticed that the algorithm awards points on a sliding scale based on need. Removing a bike from a completely full station: up to four points. Docking at an empty station? That’s worth up to another four. People who move at least four bikes in a 24-hour period get all their points multiplied by a factor of three.

"Lyft pays 20 cents per point. Each ride generates a maximum of 24 points. In perfect conditions, a person on a 3X streak who relocates a bike from a full dock to a completely empty one can earn as much as $4.80 for a single ride.

...

"At 10 a.m. on a Tuesday last month, seven Bike Angels descended on the docking station at Broadway and 53rd Street, across from the Ed Sullivan Theater. Each rider used his own special blue key — a reward from Citi Bike — to unlock a bike. He rode it one block east, to Seventh Avenue. He docked, ran back to Broadway, unlocked another bike and made the trip again.

"By 10:14, the crew had created an algorithmically perfect situation: One station 100 percent full, a short block from another station 100 percent empty. The timing was crucial, because every 15 minutes, Lyft’s algorithm resets, assigning new point values to every bike move.

"The clock struck 10:15. The algorithm, mistaking this manufactured setup for a true emergency, offered the maximum incentive: $4.80 for every bike returned to the Ed Sullivan Theater. The men switched direction, running east and pedaling west."

Recent kidney transplant papers

 Here are two new papers on kidney exchange that caught my eye, and one on incentivizing deceased donation by prioritizing registered donors on the deceased donor waiting list.

This one concerns organizing international kidney exchanges between countries while making sure that each one gets their fair share. (All exchanges are between 2 pairs.)

Benedek, Márton, Péter Biró, Daniel Paulusma, and Xin Ye. "Computing balanced solutions for large international kidney exchange schemes." Autonomous Agents and Multi-Agent Systems 38, no. 1 (2024): 1-41.

Abstract: To overcome incompatibility issues, kidney patients may swap their donors. In international kidney exchange programmes (IKEPs), countries merge their national patient–donor pools. We consider a recently introduced credit system. In each round, countries are given an initial “fair” allocation of the total number of kidney transplants. This allocation is adjusted by a credit function yielding a target allocation. The goal is to find a solution that approaches the target allocation as closely as possible, to ensure long-term stability of the international pool. As solutions, we use maximum matchings that lexicographically minimize the country deviations from the target allocation. We perform, for the first time, a computational study for a large number of countries. For the initial allocations we use two easy-to-compute solution concepts, the benefit value and the contribution value, and four classical but hard-to-compute concepts, the Shapley value, nucleolus, Banzhaf value and tau value. By using state-of-the-art software we show that the latter four concepts are now within reach for IKEPs of up to fifteen countries. Our experiments show that using lexicographically minimal maximum matchings instead of ones that only minimize the largest deviation from the target allocation (as previously done) may make an IKEP up to 54% more balanced.

"We consider IKEPs in the setting of European KEPs which are scheduled in rounds, typically once in every three months.

...

"We first note that the search for an optimal exchange scheme can be done in polynomial time for 2-way exchanges (matchings) but becomes NP-hard as soon as 3-way exchanges are permitted."

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Here's a paper that reports simulations on Using deceased donor kidneys to start living donor kidney exchange chains

Verma, Utkarsh, Nayaran Rangaraj, Viswanath Billa, and Deepa Usulumarty. "Long term simulation analysis of deceased donor initiated chains in kidney exchange programs." Health Systems (2023): 1-12.

ABSTRACT: Kidney exchange programs (KEPs) aim to find compatible kidneys for recipients with incompatible donors. Patients without a living donor depend upon deceased donor (DD) donations to get a kidney transplant. In India, a DD donates kidneys directly to a DD wait-list. The idea of initiating an exchange chain starting from a DD kidney is proposed in a few articles (and executed in Italy in 2018), but no mathematical formulation has been given for this merger. We have introduced an integer programming formulation that creates DD-initiated chains, considering both paired exchange registry and DD allocations simultaneously and addressing the overlap issue between the exchange registry and DD wait-list as recipients can register for both registries independently. A long-term simulation study is done to analyse the gain of these DD-initiated chains over time. It suggests that even with small numbers of DDs, these chains can significantly increase potential transplants.

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And here's the paper on incentivizing registration to be a deceased donor.

Li, Mengling, and Yohanes E. Riyanto. "Incentivizing Organ Donation Under Different Priority Rules: The Role of Information." Management Science (2024).

Abstract: This paper examines the incentive to register for deceased organ donation under alternative organ allocation priority rules, which may prioritize registered donors and/or patients with higher valuations for organ transplantation. Specifically, the donor priority rule grants higher priority on the organ waiting list to those who have previously registered as donors. The dual-incentive priority rules allocate organs based on donor status, followed by individual valuations within the same donor status, or vice versa. Both theoretical and experimental results suggest that the efficacy of the donor priority rule and the dual-incentive priority rules critically depends on the information environment. When organ transplantation valuations are unobservable prior to making donation decisions, the hybrid dual-incentive rules generate higher donation rates. In contrast, if valuations are observable, the dual-incentive priority rules create unbalanced incentives between high- and low-value agents, potentially undermining the efficacy of the hybrid dual-incentive rules in increasing overall donation rates.

Gaming the health care system; David Cutler's concerns

 The eminent Harvard health economist  David Cutler is worried by, among other things, the takeover of many healthcare facilities by private equity

Financial Games in Health Care—Doing Well Without Doing Good, by David M. Cutler, , JAMA Health Forum. 2024;5(5):e241591. doi:10.1001/jamahealthforum.2024.1591

"One form of gaming is asset looting—businesses taking money out of health care and then extorting state governments to replenish the funds. In an earlier publication,1 Song and I discussed how this works. Typically, a private equity firm owning a hospital sells the land the hospital is on and agrees to lease it back to the hospital at a high interest rate. The money from the sale is paid out to private equity investors; the hospital is saddled with the debt. If the hospital cannot repay the loan, the private equity firm threatens to close the facility unless the government covers the debt. Quality suffers during this process. Quality indicators at hospitals and nursing homes bought by private equity firms worsened after these changes in ownership.

...

"A third gaming strategy involves “coding intensity” and “upcoding,” which is coding and billing for more complex (and thus more expensive) care. These practices seek to maximize risk-adjusted reimbursements based on diagnostic codes. With coding intensity, the insurer codes all diagnoses ever received by an individual so that disease-based reimbursement is higher. Medicare pays private plans based on the health risks of their enrollees (measured by reported diagnoses). Thus, private insurers participating in Medicare Advantage spend enormous sums to find and code additional diagnoses. Estimates are that coding intensity will cost Medicare $50 billion in 2024.⁶

...

However, addressing coding practices is challenging because it may encourage risk selection. If payments for care provided to a patient are less than the costs incurred for that patient, insurers and clinicians may seek to treat only profitable patients and drive away the unprofitable ones. There are countless ways to do this. At the plan level, leaving prestigious hospitals out of a network and putting expensive medications in high cost-sharing tiers will drive away sicker patients.^9,10 Clinicians engage in risk selection as well. Widespread nonparticipation in Medicaid is evidence of the consequences when profitability varies with patient insurance status.

Because setting optimal health care reimbursement is difficult, less scrupulous clinicians and insurers will always have incentives to cut corners. Recently, it seems that the norms preventing this tendency are fraying. Thus, policymakers need to deter the idea that doing well can come at the expense of doing good. Whenever possible, malfeasance must be prevented in advance and punished when it occurs. Such a strategy will require willpower on the part of policymakers, not just tough words."

Gambling on sports, by and on athletes

 Now that sports betting is legal, and apps allow people to bet on particular events within a game as it unfolds, there is concern that players could be (illegally) incentivized to under-perform in order to cause some bets to become winning bets.

The WSJ has the story:

America Made a Huge Bet on Sports Gambling. The Backlash Is Here.  Less than six years after a Supreme Court ruling paved the way for widespread legal sports gambling in the U.S., sports leagues face an onslaught of scandals related to betting.  By Joshua Robinson, , Jared Diamond,  and Robert O'Connell

"American sports spent more than a century keeping gambling as far away as possible, in the name of preserving competitive purity and repelling scandal and corruption. 

"Now, less than six years after the Supreme Court opened the door for states to embrace legal sports betting, major U.S. leagues are already confronting the darker sides of sports betting with alarming frequency. And at the heart of the problems is the population whose ability to bet on sports is the most severely curbed: the athletes themselves.

...

"The situation has become worrisome enough that National Collegiate Athletic Association president Charlie Baker on Wednesday amped up his organization’s call for a nationwide ban on bets on the performance of individual college athletes. 

...

“All of the positive benefits and additional fan engagement that could potentially come from sports betting mean nothing if we’re not protecting the integrity of the game,” Marquest Meeks, MLB’s deputy general counsel for sports betting and compliance, said in an interview last summer.

"Gambling scandals have long tainted sports. The 1919 Black Sox scandal involved eight players accused of throwing the World Series for money. Baseball superstar Pete Rose received a lifetime ban for betting on baseball, a penalty that has blocked the game’s all-time hits leader from the Hall of Fame. Point-shaving scandals have periodically roiled college basketball, and NBA referee Tim Donaghy went to prison for betting on games he officiated.

...

"Odds are now openly discussed on live broadcasts. Ads for betting apps seem to appear during every commercial break and are plastered around stadiums and arenas. Sports leagues even have gambling-focused programming on their official networks. 

...

"What’s at stake now is the promise that lies at the very center of the sports experience: Fans and participants must believe that what they are seeing is true. Yet as the leagues and the gamblers grow closer together, the mere suggestion that players could be motivated to manipulate outcomes has been enough to create fresh doubts. 

...

"Since the prohibition on sports gambling was lifted, leagues that had once viewed betting as an existential threat to their integrity scrambled to partner with gambling companies and brought them into the tent. This winter, Los Angeles Lakers superstar LeBron James became a brand ambassador for DraftKings, where he will dispense picks for football games. The NBA itself also announced a new feature designed to mesh the betting experience with live action: Fans watching games on League Pass, the flagship streaming platform, would be able to opt in to view betting odds on the app’s interface and click through to place wagers.

"Nothing, however, made the American marriage between sports and betting more public than what took place in the Nevada desert in February: The NFL held its first ever Super Bowl in Las Vegas.

...

“To half the world, I’m just helping them make money on DraftKings,” [Indiana Pacers point guard Tyrese] Haliburton said Tuesday evening, naming one of the league’s partners. “I’m a prop.” He was referring to so-called proposition bets, in which gamblers can place wagers on specific outcomes such as how many points a player scores or rebounds he grabs."

The Impact of prioritization on kidney and liver allocation in Israel

   Israel's  Organ Transplantation Law grants some priority on waiting lists for transplants to candidates who are first-degree relatives of deceased organ donors (i.e. whose family has given permission for someone's deceased organ donation) or who previously registered as organ donors themselves. (There's also a tiny priority for relatives of people who signed organ donor cards...)  Here are two papers that looks at the effect of those priorities on kidney and liver transplants, and how they interact with other priorities on waiting lists for Israeli organs.  

The first paper, on kidneys, concludes that the priorities are effective in reducing waiting time to transplant, and suggests that perhaps these priorities should not be so large compared to other existing priorities (e.g. for time on dialysis), or for priorities that could be established, e.g. for highly sensitized patients (who get high priority in the U.S., for example.)

Mor, Eytan, Meitar Bloom, Ronen Ghinea, Roi Anteby, Ronit Pasvolsky-Gutman, Ron Loewenthal, Ido Nachmani, and Tammy Hod. "The Impact of the Donor Card Holder Prioritization Program on Kidney Allocation in Israel." Transplantation (2024): 10-1097.

Abstract

Background: Since 2014, as part of a priority program within the Israeli Transplant Law, additional points were given to waitlisted candidates with donor cards. We assessed the impact on deceased donor kidney allocation.

Methods: This study enrolled all patients older than 18 y who underwent deceased donor kidney transplantation (January 2016–December 2019). Data were obtained from the National HLA Tissue Laboratory registry at the Sheba Medical Center. Patients were grouped by donor card status (ADI group) (not signed, 0 points; relative signed, 0.1 points; patient signed, 2 points; and relative donated, 9 points). The primary outcome was waiting time until kidney transplantation with and without the additional score.

Results: Four hundred forty-four patients underwent kidney transplantation during the study period: 281 (63%) were donor card holders (DCH) and 163 (37%) were not DCH. DCH with extra points waited 68.0 (±47.0) mo on average, compared with 94.6 (±47.3) mo for not DCH (P < 0.001). Donor card signers had a shorter time until transplant in a multivariable model. Without extra points, 145 recipients (32.6%) would have missed organs allocated to higher-scored candidates. Allocation changes occurred in 1 patient because of an additional 0.1 points, in 103 candidates because of an additional 2 points, and in 41 candidates because of an additional 9 points.

Conclusions: Additional DCH scores improved allocation and reduced waiting time for donor card signers and those with donating relatives. To enhance fairness, consideration should be given to reducing the score weight of this social criterion and raising scores for other factors, especially dialysis duration.

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There are many fewer liver transplants than kidney transplants, and the effect of priority is less clear:

Ashkenazi, Tamar, Avraham Stoler, and Eytan Mor. "The effect of priority given to donor card holders on the allocation of livers for transplant—evidence from 7 years of the Israeli priority program." Transplantation 106, no. 2 (2022): 299-307.

Abstract

Background. The Israeli Transplant Law grants priority in organ allocation to patients signing a donor card. Liver transplant candidates get additional 2 points on their Model for End Stage Liver Disease score for signing a donor card, 0.1 points for a relative holding a card, and 5 points if a relative donated an organ. We studied the effect of the priority program on waiting list mortality and allocation changes due to priority.

Methods. Using Israeli Transplant data of 531 adult liver transplant candidates with chronic liver disease listed between 2012 and 2018 we compared waitlist mortality and transplant rate of candidates with and without priority. Then we analyzed liver allocations resulting from additional priority points and followed outcome of patients who were skipped in line.

Results. Of the 519 candidates, 294 did not sign a donor card, 82 signed, 140 had a relative sign, and for 3, a relative donated an organ. The rates of waitlist mortality in these 4 groups were 22.4%, 0%, 21.4%, and 0%, respectively, and the transplant rates were 50%, 59.8%, 49.3%, and 100%, respectively. Of the 30 patients who were skipped because of priority, 24 subsequently underwent transplant, 2 are on the waiting list, and 4 died within 0.75, 1.75, 7, and 17 mo.

Conclusions. The 2 points added to the Model for End Stage Liver Disease score were associated with lower waitlist mortality and higher transplant rate for candidates signing a donor card without significantly affecting access to transplant during allocation. Further research and consideration of optimal policy when granting priority for candidates signing a donor card should continue.

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Earlier:

Stoler, Avraham,  Judd B. Kessler, Tamar Ashkenazi, Alvin E. Roth, Jacob Lavee, “Incentivizing Authorization for Deceased Organ Donation with Organ Allocation Priority: the First Five Years,” American Journal of Transplantation, Volume 16, Issue 9, September 2016,  2639–2645. 

 Stoler, Avraham, Judd B. Kessler, Tamar Ashkenazi, Alvin E. Roth, Jacob Lavee, “Incentivizing Organ Donor Registrations with Organ Allocation Priority,”, Health Economics, April 2016 Volume: 26   Issue: 4   Pages: 500-510   APR 2017

Incentives to take tests and get vaccinated

 As the pandemic phase of Covid-19 recedes, we can reflect on what we've learned about demand for tests and for vaccines.   Here's a paper from a year ago that I missed at the time  that discusses incentives and defaults.

Incentives and Defaults Can Increase COVID-19 Vaccine Intentions and Test Demand, by Marta Serra-Garcia and Nora Szech, Management Science, Vol. 69, No. 2, February 2023, Pages 723-1322, iii-iv

Abstract: Willingness to vaccinate and test are critical in the COVID-19 pandemic. We study the effects of two measures to increase the support of vaccination and testing: defaults and monetary compensations. Some organizations, such as restaurants, fire departments, hospitals, or governments in some countries, have used these measures. Yet there is the concern that compensations could erode intrinsic motivation and decrease vaccination intentions. We show that, in the early stages of the pandemic, both approaches, compensations and defaults, significantly increased COVID-19 test demand and vaccine intentions. Compensations for vaccines, however, need to be large enough because low compensations can backfire. We estimate heterogeneous treatment effects to document which groups are more likely to respond to these measures. The results show that defaults and avoidance of small compensations are especially important for individuals who are more skeptical of the vaccine, measured by their trust in the vaccine and their political views. Hence, both measures could be used in a targeted manner to achieve stronger results.

Reporting and misreporting from Organ Procurement Organizations (OPOs)

 Because there are shortages of organs for transplant, it is important to measure how successful Organ Procurement Organizations (OPOs) are at recovering and transplanting organs.  But sometimes definitions can get in the way, and this was the case in islet transplants from deceased donors, into patients with diabetes.  Pancreatic islets are the cells that produce insulin, and it was (and I think still is) regarded as an experimental procedure to transplant islets from a deceased donor's pancreas, rather than the whole pancreas.  So islet transplantation was classified as a research activity.

To encourage this use of deceased donor pancreases, recovery of a pancreas "for research" was counted as a transplant. But some OPO's have heavily gamed this, reporting that they recovered a pancreas when the "research" wasn't connected to transplantation.  That loophole is now being closed.

Here's a January 18 memo from HHS, CMS, Center for Clinical Standards and Quality

Organ Procurement Organization (OPO) Conditions for Coverage – Definition Clarification 

"Background:

"The OPO CfCs are intended to drive improvements in organ procurement and transplantation through, among other provisions, the donor and transplantation outcome measures. OPOs are required to report data related to pancreata procured for research, and this data is incorporated into calculations used to assess compliance with the donor and transplant outcome measures and are used for re-certification purposes. To facilitate accurate reporting of data related to pancreata donors, the term “donor” is defined in CMS regulation to specify that, among other requirements, an individual would be considered a donor even if only the pancreas is procured and is used for research or islet cell transplantation.

"CMS has noted a significant increase in the number of pancreata procured since this definitionwas revised in 2020, raising questions about the interpretation of this definition by OPOs and how this definition is applied to reporting data related to donors of pancreata used for islet cell research. There is a concern that the increase in pancreata procured may not reflect a meaningful increase in pancreata being actually used for islet cell research, and instead may reflect pancreata procured for other purposes. This memo is clarifying that the pancreata must be used for islet cell research. 

...

"In summary, this memo is clarifying that consistent with the Pancreatic Islet Cell Transplantation Act of 2004, only pancreata procured by an OPO and used for islet cell transplantation or research shall be counted"

Incentives and mis-incentives in science (Freakonomics part II)

 Freakonomics has a second post on fraud in science, and you can listen or read the transcript here:

Can Academic Fraud Be Stopped?

Two quotes stood out for me:

1. VAZIRE: Oh, I don’t mind being wrong. I think journals should publish things that turn out to be wrong. It would be a bad thing to approach journal editing by saying we’re only going to publish true things or things that we’re 100 percent sure are true. The important thing is that the things that are more likely to be wrong are presented in a more uncertain way. And sometimes we’ll make mistakes even there. Sometimes we’ll present things with certainty that we shouldn’t have. What I would like to be involved in and what I plan to do is to encourage more post-publication critique and correction, reward the whistleblowers who identify errors that are valid and that need to be acted upon, and create more incentives for people to do that, and do that well.

...

2. BAZERMAN: Undoubtedly, I was naive. You know, not only did I trust my colleagues on the signing-first paper, but I think I’ve trusted my colleagues for decades, and hopefully with a good basis for trusting them. I do want to highlight that there are so many benefits of trust. So, the world has done a lot better because we trust science. And the fact that there’s an occasional scientist who we shouldn’t trust should not keep us from gaining the benefit that science creates. And so one of the harms created by the fraudsters is that they give credibility to the science-deniers who are so often keeping us from making progress in society.

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Earlier:

Sunday, January 14, 2024

"Why Is There So Much Fraud in Academia?" Freakonomics interviews Max Bazerman and others

It's a dominant strategy for deferred acceptance proposers to state true preferences in the marriage problem: simple proof

This post is not entirely self-contained, it is in some sense a continuation of and addition to my talk last year at the Simons Institute, which you can see at this link: 

Simple Proofs of Important Results in Market Design-- (video of my talk at Berkeley's Simons Institute)

In that talk (based on work I'm doing with Mike Ostrovsky) I defined the marriage model of Gale and Shapley, gave necessary definitions,  and following the style of their original article, I showed simple, verbal proofs of a number of results, including the constant employment ("lone wolf") theorem:

Constant employment theorem: In a "marriage market"(M,W, P) with strict preferences, the set of people who are single is the same for all stable matchings.

Now based on that theorem, here's a simple proof of the dominant strategy theorem, inspired by a  very short proof (with attributions to Alex Teytelboym and Ravi Jagadeesan) in Nick Arnosti's recent blog post A Short Proof of the Truthfulness of DA by Nick Arnosti 2023/10/01 

Here's the theorem to be proved:

Dominant Strategy Theorem (Dubins and Freedman, Roth): In the M-optimal stable mechanism for the marriage problem (e.g. when the man-proposing deferred acceptance algorithm is used, which produces the most favorable stable matching for every man) it is a dominant strategy for each man i to state a preference list corresponding to his true preferences ≻.

Notation: for any preference ≻′ of player i, an outcome is ≻′-stable if it is stable when i reports ≻′ and everyone else's preferences remain constant.

Proof (following Arnosti)

Suppose that the theorem is false. That is, suppose there exist preferences for all other agents such that when i reports ≻, the resulting ≻-stable matching μ gives μ(i)=w, and when i reports ≻′ ≠ ≻, the resulting ≻′-stable matching μ′ gives μ′(i)=w′≻w. (Note that the final comparison is ≻, i.e. take ≻ to be i's true preference list.)

Consider the market in which i lists w′ as the only acceptable woman (and everyone else's preferences remain fixed). We'll see that this will lead to a contradiction with the constant employment theorem, by implying that there must exist a {w'}-stable matching in which i matches to w′, and another {w'}-stable matching in which i is unmatched. 

1. The matching μ′ assigns i to w′. Because it is ≻′-stable, it must also be {w′}-stable: the only difference between ≻′ and {w'} is that we have removed women from i’s list, which clearly does not create any new blocking pairs.

Note: this step uses only the definition of stability.

2. Let ≻′′ be the deviation in which i truncates ≻ below w′ (i leaves everyone below w′ off of his list), and let μ′′ be the resulting matching.

a. The matching μ′′ leaves i unassigned.  This follows from the fact that, if it matched i, then μ″ would be ≻-stable, since ≻ differs from ≻'' only in that it restores the truncated elements of i's preference, which would be below i's match and hence not introduce any new blocking pairs (since it wouldn't change i's match). But  μ″ can't be ≻-stable,  because w is i’s best ≻-stable partner by assumption, and is worse than all women listed in ≻′′.*

Note: this step uses the definition of stability and fact that μ is optimal for i.

b. Because μ′′  (which leaves i unassigned) is ≻′′-stable, it is also {w′}-stable: the only difference between ≻′′ and {w′} is that we have removed women from i’s list, which does not create any new blocking pairs).

Note: this step uses only the definition of stability.

To recap: μ′ and μ′′ must both be {w′}-stable, but i is matched to w′ by μ′ and unmatched by μ′′ (a contradiction).

This completes the proof.

*Note that the reason μ′′ isn't ≻-stable is that it leaves i unassigned, and so creates new blocking pairs involving i with respect to his true full preferences.

Market Design for Surface Water , by Ferguson and Milgrom

 The potential market for surface water is a market in which any transfer of rights involves externalities affecting the water consumption of others.

Market Design for Surface Water  by Billy A. Ferguson & Paul Milgrom, NBER WORKING PAPER 32010, DOI 10.3386/w32010, December 2023

Abstract: Many proposed surface water transfers undergo a series of regulatory reviews designed to mitigate hydrological and economic externalities. While these reviews help limit externalities, they impose substantial transaction costs that also limit trade. To promote a well-functioning market for surface water in California, we describe how a new kind of water right and related regulatory practices can balance the trade-off between externalities and transaction costs, and how a Water Incentive Auction can incentivize a sufficient number of current rights holders to swap their old rights for the new ones. The Water Incentive Auction adapts lessons learned from the US government’s successful Broadcast Incentive Auction.

From the introduction:

"Why is there so little water trading in California despite the heterogeneous uses and huge price differences? The consensus among many economists studying water is that much of the problem lies in an archaic system of property rights, which was perhaps simple and clear enough to function well when California was first settled, but which is dysfunctional today. We will argue below that trading in traditional water rights creates externalities, so efficiency-enhancing changes in water allocations cannot be achieved by exhausting profitable bilateral trades. Rather, it requires a coordinated, multilateral effort. The next section on the Institutional Background provides a description of water rights and the externalities that can result from trade or from certain other decisions about uses. What is most novel in this paper comes after that: we analyze a mechanism that enacts a change in water rights that could lead to much more efficient trade.

Our analysis draws on lessons learned from the US Broadcast Incentive Auction in 2016-17, in which some rights to use radio spectrum for television broadcast were combined, converted, and subdivided into more flexible rights that were better suited for wireless broadband communications. This was accomplished using an auction procedure designed to provide an “incentive” for broadcasters to participate. As in that auction, participation in an analogous Water Rights Incentive Auction could be entirely voluntary, with current water users incentivized to participate because they could trade their existing rights for new, more flexible rights and possibly additional payments as determined by an auction. Just as the Broadcast Incentive Auction achieved its goals described in the National Broadband Plan even though many broadcasters chose not to sell their rights, a Water Incentive Auction could provide the substantial benefits of more flexible water rights even if many water users decline to participate. We describe some details of a possible Water Incentive Auctions in a later section of this paper."

Organ transplantation in China: in transition--and controversy about paying funeral costs

 I recently spoke at the CAST transplant conference in Hong Kong (see picture), and the underlying theme of my talk, and of many talks there, was the transition of transplantation in China, and what its future might hold.

Jie-Fu HUANG is the other speaker on Zoom (to my right and your left), and Haibo Wang is on the far left on stage.

Here are two of my opening slides (using 2021 data from the Global Observatory on Donation and Transplantation)

On the left, you see that, today, China and India already perform more kidney transplants than any country in the world except the U.S.  On the right, you see that, by virtue of their large populations, they accomplish this despite their quite low rates of transplants per million population, compared to the U.S. and countries in Europe.  So if China and India can raise their transplant rates to rates comparable to the U.S. and Europe, most of the transplants in the world will be done in Asia, and many many additional lives will be saved.

Note that China mostly transplants kidneys from deceased donors, while India mostly transplants kidneys from living donors. So they have different paths (and plenty of untapped potential) for raising donation and transplantation rates.  And their paths to their current positions have also been very different.

Here is a recent account reflecting China's recent progress:

Chen, Zhitao, Han, Ming, Dong, Yuqi, Zeng, Ping, Liao, Yuan, Wang, Tielong, et al. (2023). First Affiliated Hospital of Sun Yat-sen University, Guangzhou, People's Republic of China: 5-year Experience at a High-volume Donor and Recipient Liver Transplant Center. Transplantation, 107, 1855-1859. https://doi.org/10.1097/TP.0000000000004561

" In 1972, our center performed the first living donor kidney transplantation in China. Since then, kidney and liver transplant programs have evolved. By the beginning of the 21st century, organ transplantation had advanced, and clinical liver transplants have been performed successfully at the First Affiliated Hospital of Sun Yat-sen University.1

"Organ shortage has been a prominent feature at our institution as it has been around the world. Starting in the early 1980s, many organs had been procured from inmates on death rows. This unethical approach has been rightfully criticized by the worldwide community. As a consequence, the source of organs for transplants has solely been replaced by voluntary donations from Chinese citizens since January 1, 2015.

...

"Moreover, policies and methods for humanitarian aid to donor families were established. Those policies follow WHO guidelines while recognizing specific aspects of the Chinese culture. The State Ministry of Health and the Red Cross Society of China launched a pilot project on organ donation after the death of citizens in 2010 and established the China Organ Donation Committee. The principle of this pilot project was to learn from the experiences and standards in developed countries while recognizing national conditions and the social reality in China aiming to build an ethical and effective scientific organ donation and transplantation system.2

**********

In the same issue of Transplantation as the above article is this invited commentary by Ascher and Delmonico, both former Presidents of The Transplanation Society (of which Transplantation is the official journal). They largely approve of the effort China has made in transplants, but they have a big reservation.

Ascher, Nancy, MD, PhD & Delmonico, Francis. (2023). Organ Donation and Transplantation in China. Transplantation, 107, 1880-1882. https://doi.org/10.1097/TP.0000000000004562

"The date of 2015 is important for the review of any organ transplantation report from China because of the public proclamation in the media in 2015 prohibiting the use of organs from executed prisoners. Clinical transplantation articles antecedent to 2015 have been consistently rejected by Transplantation and the international community because the source of the transplanted organs was most often an incarcerated prisoner. China took a major step to condemn this practice publicly in 2015. However, because there is no law or regulation that prohibits this unethical practice, there has been ongoing concern that this practice may be continuing. Notwithstanding such a reality, there have been regulations that are citable and may be reflective of the changing experience of organ donation and transplantation in China that are consistent with the World Health Organization (WHO) Guiding Principles.

...

"WHAT CONTINUES TO BE OBJECTIONABLE

"The Chinese Red Cross is prominent in the organ donation process and a center of support for deceased donor families designated by the Red Cross as humanitarian aid to donor families.7 However, such humanitarian aid, although not limited to China, should not be misinterpreted to be an effort because it includes payment to elicit consent for donation. The Sun Yat-sen publication suggests that the Red Cross policies follow WHO guidelines while recognizing specific aspects of Chinese culture without elaboration as to the cultural details. A payment to donor families for funeral expenses or other monetary incentives should be recognized as a form of commercialization and would not comply with WHO guidelines."

**********

Some background may help put this objection in perspective. Doctors Delmonico and Ascher are prominent signatories of a declaration that payments to families of organ donors are crimes against humanity (as are payments to living donors, and both are declared comparable to transplanting organs from executed prisoners, and to be organ trafficking. See my 2017 post.)

So, they raise the question of whether saving many lives by increasing deceased donation in China will be justified if it involves paying funeral expenses of donors.  

My guess is that Chinese health authorities, thinking of the many lives to be saved, will think that this act of generosity to families of deceased donors will indeed be justified, taking account of (see above) "national conditions and the social reality in China aiming to build an ethical and effective scientific organ donation and transplantation system." 

Many people in China and elsewhere might even think that little if any justification is needed for generosity, particularly generosity to families of deceased donors, that is to families who are themselves generous.

Navigating NYC school choice: advice for families

 Each year a new cohort of families has to navigate school choice in New York City.  The city offers lots of resources for gathering information.  One advantage of employing methods that make it safe to reveal true preference orders is that at least one aspect of the process is straightforward. (Of course, constructing a list of 12 schools out of the many available isn't easy.)

The NY Times offers a guide, which is full of information on how to go about gathering information with which to form preferences over schools:

Applying to N.Y.C. Public Schools Can Feel Daunting. Here’s What to Know. What matters when choosing a school? How should you compare options? And what’s the best strategy for getting your first choice?  By Troy Closson, Sept. 5, 2023,

"What’s the best strategy when applying?

"You should rank schools and programs in order of your true preference. There is no better approach. Students are considered for a lower choice only if a higher ranked school does not have space.

"Admissions experts suggest creating a complete list of 12 schools with a balance of programs, priorities and demand per seat, which you can find on MySchools. Apply by the deadline; there is also no benefit to applying earlier"

HT: Parag Pathak

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Another resource:

Abdulkadiroglu, Atila , Parag A. Pathak, and Alvin E. Roth, "Strategy-proofness versus Efficiency in Matching with Indifferences: Redesigning the NYC High School Match,'' American Economic Review, 99, 5, Dec. 2009, pp1954-1978. 

Incentives in matching markets: Counting and comparing manipulating agents by Bonkoungou and Nesterov

 Here's a paper that caught my eye in the current issue of Theoretical Economics, Volume 18, Issue 3 (July 2023)

Incentives in matching markets: Counting and comparing manipulating agents by Somouaoga Bonkoungou and Alexander Nesterov

Abstract: Manipulability is a threat to the successful design of centralized matching markets. However, in many applications some manipulation is inevitable and the designer wants to compare manipulable mechanisms to select the best among them.  We count the number of agents with an incentive to manipulate and rank mechanisms by their level of manipulability. This ranking sheds a new light on practical design decisions such as the design of the entry-level medical labor market in the United States, and school admissions systems in New York, Chicago, Denver, and many cities in Ghana and the United Kingdom.

"First, we consider the college admissions problem where both students and schools are strategic agents (Gale and Shapley (1962)) and schools can misreport their preferences as well as their capacities. We show that when all manipulations (by students as well as by schools) are considered, the student-proposing Gale–Shapley (GS) mechanism has the smallest number of manipulating agents among all stable matching mechanisms (Theorem 1). Dubins and Freedman (1981) and Roth (1982) show that this mechanism is not manipulable by students. This result was one of the main arguments in favor of its choice for the NRMP. However, it also has the largest number of manipulating schools among all stable mechanisms (Pathak and Sönmez (2013)). Our result still supports its choice when all strategic agents are considered. What is more, it is still the best choice even when schools can only misreport their capacities, but not their preferences. All these conclusions carry over to the general model where, in addition, students face ranking constraints: although the student-proposing GS mechanism is now manipulable by students, it is still the least manipulable mechanism.

"Second, we consider the school choice problem (Abdulkadiroglu and Sönmez ˘ (2003)) where students are the only strategic agents and also face ranking constraints. Historically, many school choice systems have used the constrained immediate acceptance (Boston) mechanism, but over time shifted toward the constrained student proposing GS mechanisms and relaxing the constraint. We demonstrate that the number of manipulating students (Theorem 2) weakly decreased as a result of these changes."

Statement of Policy Principles and Solutions: Living Organ Donation, from the American Association of Kidney Patients (AAKP), the American Society of Transplant Surgeons (ASTS), and the American Society of Transplantation (AST)

 Here's a joint statement about living-donor kidney transplantation from the American Association of Kidney Patients (AAKP), the American Society of Transplant Surgeons (ASTS), and the American Society of Transplantation (AST). The statement opposes rethinking the ban on compensation for donors, suggests that other policies should be evidence-based, and opposes increased bureaucratization and cumbersome regulation of the transplant process.

Statement of Policy Principles and Solutions:  Living Organ Donation

"We stand together in our conviction that any policy changes impacting living organ donation, including those aimed at improving access to living donor transplantation and increasing the survival of already transplanted patients, must begin with principled and transparent dialogue with patients and the expert transplant teams who care for them.  

...

"The United States ranks in the top tier of nations in terms of living donor transplant rates,[1] meaning the current system for living donation works. However, disparities in access to living donor transplantation remain, and we must continue to improve and expand living donor transplantation for those in need.  As such, we support policy changes that are patient-centric, fiscally realistic, and ethically and legally sound. 

"Over the past decade some well-intended organizations and advocates have advanced ideas to increase access to living donor transplantation, including direct payments for or large financial incentives for organ transplants, that may appear expedient but can result in serious adverse consequences for transplantation and for patients. Many of these proposals pose serious unintended negative consequences to both donors and to public trust in organ donation. We fundamentally reject efforts to model changes to the current US system based on research or organ transplant practices in nations such as China and Iran whose governments fail to meet or ignore high international and US standards for ethical medical research and basic human rights.

...

"AAKP, ASTS, and AST strongly support the elimination of disincentives to transplantation and adamantly oppose coercive financial incentives to donate.

...

"AAKP, ASTS, and AST believe that improvements to the transplant system can best be made through ethically and legally sound, evidence-based, data driven policies informed and guided by patients and transplant professionals rather than by overhauling the entire transplant system.

"The transplantation system is a public-private partnership between the federal government and the transplant community and is designed, in part, to prevent overt political influence or other governmental interference in shared patient-physician decision making and clinical judgement. The relationship between patients, including living organ donors, and the doctors and medical institutions they choose to care for them must be protected and respected, as should the ability of individual transplant professionals to make clinical decisions in the best interest of those patients.

"Transplantation is heavily regulated by multiple federal agencies, including the Centers for Medicare and Medicaid Services (CMS), the Health Resources Services Administration (HRSA), and two HRSA contractors (the Organ Procurement and Transplantation Network (OPTN) and the Scientific Registry of Transplant Recipients (SRTR)).  Transplant centers are subject to duplicative (and often conflicting) requirements and surveys imposed by CMS and the OPTN. Living donor transplant programs are subject to additional scrutiny to ensure that donors are not pressured, coerced, or intimidated into donating an organ.  All living donor transplant programs are required to have independent living donor advocates that ensure that donors’ full and informed consent is given with a full understanding of the procedure and its potential risks and consequences.

"Into this existing and complex regulatory framework, some organizations are proposing policy and legislative changes that would either expand federal control over transplant by inserting yet another federal agency into the process or overhauling the entire transplant system to give federal agencies, as well as political appointees and politicians, greater authority to regulate living donor transplantation. Exposing the living organ donation system to such political influence and putting decision-making in the hands of non-transplant experts is a mistake with dangerous consequences for patient health, public trust, and donor and patient confidence.

"These proposals raise the possibility that the federal government would mandate a “one-size fits all approach” to an incredibly complex set of clinical problems. Such an approach would likely result in fewer innovations and fewer opportunities to reduce barriers to transplantation, especially for historically underserved communities. There are many potential reforms to the transplant system that can be effective, have been suggested by the wider transplant community over the past decade, and should be adopted by Congress and federal agencies. However, any policy or legislative proposal that seeks to amend or replace the existing system with an even larger federal bureaucratic reach with the potential for federal interference in decisions made among organ donors and patients and the doctors and medical institutions they choose to receive care from should be viewed with skepticism.

"We oppose policy efforts that seek to place any governmental entity in the position of determining clinical criteria for living donor transplantation or otherwise interfering with the relationship between and among potential recipients, potential donors, and their caregivers.

*******

As a reader of many such joint statements, I wonder if the phrase  "coercive financial incentives" resulted from a compromise between those who believe that all financial incentives are coercive, and those who wish to leave the door open in the future to ordinary, non-coercive financial incentives, of the kinds that attach to so many human activities, and have done so much to relieve other kinds of shortages.

HT: Laurie Lee via Frank McCormick

"Financial incentives for vaccination do not have negative unintended consequences," in Nature

 Here's a recent article in Nature whose title effectively summarizes its conclusions, and brings some evidence from RCTs to bear on the issue of whether financial incentives corrupt innate values:

Florian H. Schneider, Pol Campos-Mercade, Stephan Meier, Devin Pope, Erik Wengström & Armando N. Meier, "Financial incentives for vaccination do not have negative unintended consequences. Nature (2023). https://doi.org/10.1038/s41586-022-05512-4

Abstract: Financial incentives to encourage healthy and prosocial behaviours often trigger initial behavioural change1,2,3,4,5,6,7,8,9,10,11, but a large academic literature warns against using them12,13,14,15,16. Critics warn that financial incentives can crowd out prosocial motivations and reduce perceived safety and trust, thereby reducing healthy behaviours when no payments are offered and eroding morals more generally17,18,19,20,21,22,23,24. Here we report findings from a large-scale, pre-registered study in Sweden that causally measures the unintended consequences of offering financial incentives for taking the first dose of a COVID-19 vaccine. We use a unique combination of random exposure to financial incentives, population-wide administrative vaccination records and rich survey data. We find no negative consequences of financial incentives; we can reject even small negative impacts of offering financial incentives on future vaccination uptake, morals, trust and perceived safety. In a complementary study, we find that informing US residents about the existence of state incentive programmes also has no negative consequences. Our findings inform not only the academic debate on financial incentives for behaviour change but also policy-makers who consider using financial incentives to change behaviour.

"We exploit a randomized controlled trial (RCT) in the context of financial incentives for COVID-19 vaccination (P.C.-M. et al., unpublished, and ref. 5). Participants were offered payments of 200 Swedish krona (SEK; about US $24 at the time) for taking a first dose of a COVID-19 vaccine, which increased first-dose uptake by 4 percentage points 30 days after the trial (uptake remained higher even 3 months later). The RCT setting is ideal in that it allows us to compare individuals who were randomly offered financial incentives for vaccination with individuals who were not offered any financial incentives. We combine the RCT data with new Swedish administrative records for second-dose uptake and with rich, individual-level survey data.

...

"We complement our evidence from Sweden with evidence on the effects of large-scale incentive programmes implemented by US state governments. In a pre-registered study in the USA (n = 3,062), participants randomly assigned to the incentives condition received detailed information about their state’s COVID-19 vaccine incentive programme, whereas participants in the control condition did not receive this information. Because most of the participants were unaware that their state offered incentives for vaccination, this experimental design overcomes the identification problems by creating random variation in perceived exposure to incentives. In line with the evidence from Sweden, we find no negative impacts of being informed about incentive programmes on the willingness of participants to take a further dose"

Deceased donor organ discards on weekends, in the the Annals of Transplantation

 Hospital resources and physician incentives can be stressed on weekends, and there is historical evidence that organ discards are higher on weekends.  Here's a study suggesting that is still a thing.

Yamamoto, T., A. Shah, M. Fruscione, S. Kimura, N. Elias, H. Yeh, T. Kawai, and J. F. Markmann.  Revisiting the "Weekend Effect" on Adult and Pediatric Liver and Kidney Offer Acceptance. Annals of Transplantation. 2022 Nov;27:e937825. DOI: 10.12659/aot.937825. PMID: 36329622.

"BACKGROUND: Weekends can impose resource and manpower constraints on hospitals. Studies using data from prior allocation schemas showed increased adult organ discards on weekends. We examined the impact of day of the week on adult and pediatric organ acceptance using contemporary data.

"MATERIAL AND METHODS: Retrospective analysis of UNOS-PTR match-run data of all offers for potential kidney and liver transplant from 1/1/2016 to 7/1/2021 were examined to study the rate at which initial offers were declined depending on day of the week. Risk factors for decline were also evaluated.

"RESULTS: Of the total initial adult/pediatric liver and kidney offers, the fewest offers occurred on Mondays and Sundays. The decline rate for adult/pediatric kidneys was highest on Saturdays and lowest on Tuesdays. The decline rate for adult livers was highest on Saturday and lowest on Wednesday. In contrast, the decline rate for pediatric livers was highest on Tuesdays and lowest on Wednesdays. Independent risk factors from multivariate analysis of the adult/pediatric kidney and liver decline rate were analyzed. The weekend offer remains an independent risk factor for adult kidney and liver offer declines, but for pediatric offers, these were not significant independent risk factors.

"CONCLUSIONS: Although allocation systems have changed, and the availability of kidneys and livers have increased in the USA over the past 5 years, the weekend effect remains significant for adult liver and kidney offers for declines. Interestingly, the weekend effect was not seen for pediatric liver and kidney offers.

Informationally Simple Incentives by Simon Gleyze and Agathe Pernoud

 Agathe Pernoud is on the Economics job market from Stanford this year, and is interested in the properties of information in environments in which agents may need to learn their own preferences.

Here are two papers that advance the theory of those situations, and expand on the fragility of 'dominant strategies' as the strategy space is enlarged.

Informationally Simple Incentives by Simon Gleyze and Agathe Pernoud, Journal of Political Economy, forthcoming.

Abstract: We consider a mechanism design setting in which agents can acquire costly information on their preferences as well as others’. A mechanism is informationally simple if agents have no incentive to learn about others’ preferences. This property is of interest for two reasons: First, it is a necessary condition for the existence of dominant strategy equilibria in the extended game.  Second, this endogenizes an “independent private value” property of the interim information structure. We show that, generically, a mechanism is informationally simple if and only if it satisfies a separability condition which rules out most economically meaningful mechanisms."

See also Agathe's job market paper:

How Competition Shapes Information in Auctions by Simon Gleyze and Agathe Pernoud

We consider auctions where buyers can acquire costly information about their valuations and those of others, and investigate how competition between buyers shapes their learning incentives. In equilibrium, buyers find it cost-efficient to acquire some information about their competitors so as to only learn their valuations when they have a fair chance of winning. We show that such learning incentives make competition between buyers less effective: losing buyers often fail to learn their valuations precisely and, as a result, compete less aggressively for the good. This depresses revenue, which remains bounded away from the expected second-highest valuation even when information costs are small. It also undermines price discovery. Finally, we examine the implications for auction design. First, setting an optimal reserve price is more valuable than attracting an extra buyer. Second, the seller can incentivize buyers to learn their valuations, hence restoring effective competition, by maintaining uncertainty over the set of auction participants.

Choosing (as if) from a menu (by Gonczarowski, Heffetz and Thomas; and by Bó, and Hakimov)

What makes serial dictatorship so obviously strategy proof is that it gives each participant the opportunity to choose from a menu, and get what he/she picks.  So the dominant strategy is to pick what you want (and if you have to delegate the decision by submitting a list of preferences, it is a dominant strategy to state your true preferences.

Here are two papers differently inspired by that thought, which seek to reformulate matching mechanisms so that they look to each player like choice from a menu.

Strategyproofness-Exposing Mechanism Descriptions by Yannai A. Gonczarowski, Ori Heffetz, Clayton Thomas

Abstract: "A menu description defines a mechanism to player i in two steps. Step (1) uses the reports of other players to describe i's menu: the set of i's potential outcomes. Step (2) uses i's report to select i's favorite outcome from her menu. Can menu descriptions better expose strategyproofness, without sacrificing simplicity? We propose a new, simple menu description of Deferred Acceptance. We prove that -- in contrast with other common matching mechanisms -- this menu description must differ substantially from the corresponding traditional description. We demonstrate, with a lab experiment on two simple mechanisms, the promise and challenges of menu descriptions."

***************

Pick-an-object Mechanisms by Inácio Bó, Rustamdjan Hakimov

Abstract: "We introduce a new family of mechanisms for one-sided matching markets, denoted pick-an-object (PAO) mechanisms. When implementing an allocation rule via PAO, agents are asked to pick an object from individualized menus. These choices may be rejected later on, and these agents are presented with new menus. When the procedure ends, agents are assigned the last object they picked. We characterize the allocation rules that can be sequentialized by PAO mechanisms, as well as the ones that can be implemented in a robust truthful equilibrium. We justify the use of PAO as opposed to direct mechanisms by showing that its equilibrium behavior is closely related to the one in obviously strategy-proof (OSP) mechanisms, but implements commonly used rules, such as Gale-Shapley DA and top trading cycles, which are not OSP-implementable. We run laboratory experiments comparing truthful behavior when using PAO, OSP, and direct mechanisms to implement different rules. These indicate that agents are more likely to behave in line with the theoretical prediction under PAO and OSP implementations than their direct counterparts."

School choice with outside options , by Akbarpour, Kapor, Neilson, van Dijk, and Zimmerman in J.Pub.E.

 One of the differences between market design and the theoretical mechanism design literature is that in mechanism design, the theorist creates the whole universe of strategies available to participants, while in practical market design, the marketplace being designed is part of some larger economic environment, which gives the participants potentially bigger strategy sets.

Here's a paper that takes that point of view with respect to school choice. In the empirical part of the paper, a switch from a manipulable immediate acceptance algorithm to a strategy proof  deferred acceptance algorithm influences families with an outside option (a guaranteed continuation in the school where they are enrolled in pre-kindergarten) differently from families without that safe option.  When the manipulable algorithm is used, families without an outside option often find it too risky to compete for scarce spaces in the most desirable schools, which they can safely do when the strategy proof algorithm is employed.

Centralized School choice with unequal outside options by Mohammad Akbarpour, Adam Kapor, Christopher Neilson, Winnie van Dijk, Seth Zimmerman, Journal of Public Economics, Volume 210, June 2022, 104644

Abstract: We study how market design choices exacerbate or mitigate pre-existing inequalities among participants. We introduce outside options in a well-known school choice model, and show that students always prefer manipulable over strategy-proof mechanisms if and only if they have an outside option. We test for the proposed relationship between outside options and manipulability in a setting where we can identify students’ outside options and observe applications under two mechanisms. Consistent with theory, students with an outside option are more likely to list popular, highly-rated schools under the Boston mechanism, and this gap disappears after switching to a Deferred Acceptance mechanism.

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Related earlier posts:

Monday, January 28, 2019

School choice in New Haven: studied by Kapor, Neilson and Zimmerman and switching from immediate to deferred acceptance

Sunday, March 22, 2020

School choice without the assumption of full-information equilibrium by Kapor, Neilson and Zimmerman

And here's a post about a paper that takes outside options seriously from a different point of view.

Monday, December 14, 2020

Designing centralized marketplaces that work gracefully with pre-existing decentralized ones, in Management Science, by Benjamin Roth and Ran Shorrer