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Three Essays on Mechanism Design


Song, Li (2018) Three Essays on Mechanism Design. Dissertation (Ph.D.), California Institute of Technology. doi:10.7907/Z91834P1.


This thesis addresses mechanism design problems in three different contexts.

Chapter 2 compares two widely used student assignment mechanisms, the deferred-acceptance algorithm (DA) and the Boston algorithm (BA), in the context of the Chinese College Admission System. Two features of this system separate the study in this chapter from previous studies. First, the maximal number of schools that a student can apply to is fixed, and is significantly smaller than the total number of schools nationwide. Second, schools’ preferences over applicants are not publicly observed. Under further assumptions, which include that applicants have the same preferences over schools and schools rank applicants by a common standard, I find that students are more likely to compete for seats at top schools under DA than BA. Furthermore, there are cases in which students’ over-competition of top schools under DA results in a less efficient outcome compared to BA.

Chapter 3 studies the mechanism design problem in a market where buyers have type-dependent outside options. Previous literature usually assumes that buyers obtain a fixed value if they do not participate in a sale. This chapter focuses on scenarios in which the value of the option outside of a particular sale varies across different types of buyers. In such a scenario, an optimal mechanism for selling a private-valued item to unit-demand buyers is a second-price auction, with either a reserve price or a fixed show-up fee. This mechanism induces segregation of the market: buyers with a type which values the item high enough will exercise their outside option.

Chapter 4 analyzes grant-issuing processes in a mechanism design framework. Applicants submit their proposals for projects that may not be carried out without external funds. The grant issuer makes a selection from the proposals and decides the amount to award each selected project within a budget. This chapter characterizes optimal mechanisms to efficiently allocate the grant-issuer’s budget. The optimal mechanism overcomes the problem of mis-allocation of the current merit-based mechanism. However, the problem of crowding-out private funds still stands. This chapter also shows how the specific formof institutional constraints—the flexibility of the budget constraint, and whether an applicant can reject a grant after being rewarded — affects the form of the optimal grant-issuing mechanism.

Item Type:Thesis (Dissertation (Ph.D.))
Subject Keywords:mechanism design, optimal mechanism, school choice, outside option, grant
Degree Grantor:California Institute of Technology
Division:Humanities and Social Sciences
Major Option:Social Science
Minor Option:Economics
Thesis Availability:Public (worldwide access)
Research Advisor(s):
  • Yariv, Leeat
Thesis Committee:
  • Yariv, Leeat (chair)
  • Ledyard, John O.
  • Gillen, Benjamin J.
  • Plott, Charles R.
Defense Date:25 August 2017
Non-Caltech Author Email:lisongcaltech (AT)
Record Number:CaltechTHESIS:09072017-153615817
Persistent URL:
Song, Li0000-0002-1538-1366
Default Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:10420
Deposited By: Li Song
Deposited On:25 Sep 2017 23:03
Last Modified:04 Oct 2019 00:17

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