DP15082 Application Costs and Congestion in Matching Markets

Author(s): Yinghua He, Thierry Magnac
Publication Date: July 2020
Keyword(s): congestion, Costly Preference Formation, Gale-Shapley deferred acceptance mechanism, Matching Market Design, screening, Stable matching
JEL(s): C78, D47, D50, D61, I21
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15082

A matching market often requires recruiting agents, or ``programs,'' to costly screen ``applicants,'' and congestion increases with the number of applicants to be screened. We investigate the role of application costs: Higher costs reduce congestion by discouraging applicants from applying to certain programs; however, they may harm match quality. In a multiple-elicitation experiment conducted in a real-life matching market, we implement variants of the Gale-Shapley Deferred-Acceptance mechanism with different application costs. Our experimental and structural estimates show that a (low) application cost effectively reduces congestion without harming match quality.