Negative Externalities of Off Platform Options and the Efficiency of Centralized Assignment Mechanisms

Abstract

In this paper, we study the empirical relevance of the negative externalities generated by off-platform options and quantify aftermarket frictions that contribution to generating them in practice. The empirical results show that when off-platform options were added in Chile, matriculation in placed slots rose by 8% and dropout rates at the end of the first year of college dropped by 2 points (a 16% drop). We develop an empirical model to study and quantify the negative externalities caused by off-platform options as a function of the configuration of on and off-platform options as well as an empirical estimate of aftermarket frictions. We estimate a model of college applications, aftermarket waitlists and matriculation choices using individual-level administrative data on almost half a million applications, test scores and enrollment decisions at all on and off-platform higher education options. We show that when students are allowed to express their preferences for a larger variety of options on the platform and have fewer options off the platform, welfare increases substantially, students begin there studies sooner, and fewer students drop out by the end of the first year of study.

Article
  • Coauthors: Adam Kapor and Mohit Karnani
  • Date: 2019
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