Abstract: We study the relevance of incorporating dynamic incentives and eliciting private information about students’ preferences to improve their welfare and downstream outcomes in centralized assignment mechanisms. Using administrative data and two nationwide surveys, we identify two behavioral channels that largely explain students’ dynamic decisions: (i) initial mismatches and (ii) learning. Based on these facts, we build and estimate a structural model of students’ college progression in the presence of a centralized admission system, allowing students to learn about their match quality over time and reapply to the system. We use the estimated model to analyze the impact of changing the assignment mechanism and reapplication rules on the efficiency of the system. Our counterfactual results show that policies that provide score bonuses that elicit information on students’ cardinal preferences and leverage dynamic incentives can significantly decrease switching and increase students’ overall welfare.
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Applied Microeconomics Seminar Series