Econometrica: Mar, 2018, Volume 86, Issue 2

Demand Analysis using Strategic Reports: An application to a school choice mechanism

https://doi.org/10.3982/ECTA13615
p. 391-444

Nikhil Agarwal, Paulo Somaini

Several school districts use assignment systems that give students an incentive to misrepresent their preferences. We find evidence consistent with strategic behavior in Cambridge. Such strategizing can complicate preference analysis. This paper develops empirical methods for studying random utility models in a new and large class of school choice mechanisms. We show that preferences are nonparametrically identified under either sufficient variation in choice environments or a preference shifter. We then develop a tractable estimation procedure and apply it to Cambridge. Estimates suggest that while 83% of students are assigned to their stated first choice, only 72% are assigned to their true first choice because students avoid ranking competitive schools. Assuming that students behave optimally, the Immediate Acceptance mechanism is preferred by the average student to the Deferred Acceptance mechanism by an equivalent of 0.08 miles. The estimated difference is smaller if beliefs are biased, and reversed if students report preferences truthfully.

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