Application Costs and Congestion in Matching Markets

Abstract

A matching market often requires recruiting agents, or ‘programmes,’ 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 programmes; 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. JEL codes: C78, D47, D50, D61, I21