Discussion Paper Details

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Title: Do Peer Preferences Matter in School Choice Market Design? Theory and Evidence

Author(s): Natalie Marie Bachas, Ricardo Fonseca and Bobby Pakzad-Hurson

Publication Date: September 2021

Keyword(s): College Admissions, market design and Peer Preferences

Programme Area(s): Organizational Economics

Abstract: Can a clearinghouse generate a stable matching if it does not allow students to express their preferences over both programs and peers? Theoretically, we show that a stable matching exists with peer preferences under mild conditions, but finding one via canonical mechanisms is unlikely. We show that increasing transparency about the previous cohort of students enrolling at each program induces a t√Ętonnement wherein the distributions of former students play the role of prices. We theoretically model this process and develop a test for match stability. We implement this test empirically in the college admissions market in New South Wales (NSW), Australia, where we find evidence for the existence of peer preferences. We show that the NSW market fails to converge over time, and that this instability especially affects low socioeconomic status students. To address these issues, we propose a new mechanism that improves upon the current design, and we show that this mechanism generates a stable matching in the NSW market.

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Bibliographic Reference

Bachas, N, Fonseca, R and Pakzad-Hurson, B. 2021. 'Do Peer Preferences Matter in School Choice Market Design? Theory and Evidence'. London, Centre for Economic Policy Research.