Parag A. Pathak

The New York City High School Match

We assisted the New York City Department of Education (NYCDOE) in designing a mechanism to match over 90,000 entering students to public high schools each year. This paper makes a very preliminary report on the design process and the first year of operation, in academic year 2003–2004, for students entering high school in fall 2004. In the first year, only about 3,000 students had to be assigned to a school for which they had not indicated a preference, which is only 10 percent of the number of such assignments the previous year. New York City has the largest public school system in the country, with over a million students. In 1969 the system was decentralized into over 30 community school districts. In the 1990s, the city began to take more centralized control (Mark Schneider et al., 2000), and in 2002, a newly reorganized NYCDOE began to reform many aspects of the school system. In May 2003, Jeremy Lack, then the NYCDOE Director of Strategic Planning, contacted one of us for advice on designing a new high-school matching process. The NYCDOE was aware of the matching process for American physicians, the National Resident Matching Program (Roth, 1984; Roth and E. Peranson, 1999). They wanted to know if it could be appropriately adapted to the city’s schools. The three authors of the present paper (and, at several crucial junctures, also Tayfun Sonmez) advised (and often convinced) Lack, his colleagues (particularly Elizabeth Sciabarra and Neil Dorosin), and the DOE’s software vendor, about the design of the match. I. The Prior (2002–2003) New York City Matching Procedure

The Boston Public School Match

After the publication of “School Choice: A Mechanism Design Approach” by Abdulkadiroglu and Sonmez (2003), a Boston Globe reporter contacted us about the Boston Public Schools (BPS) system for assigning students to schools. The Globe article highlighted the difficulties that Boston’s system may give parents in strategizing about applying to schools. Briefly, Boston tries to give students their firstchoice school. But a student who fails to get her first choice may find her later choices filled by students who chose them first. So there is a risk in ranking a school first if there is a chance of not being admitted; other schools that would have been possible had they been listed first may also be filled. Valerie Edwards, then Strategic Planning Manager at BPS, and her colleague Carleton Jones invited us to a meeting in October 2003. BPS agreed to a study of their assignment system and provided us with micro-level data sets on choices and characteristics of students in the grades at which school choices are made (K, 1, 6, and 9), and school characteristics. Based on the pending results of this study, the Superintendent has asked for our advice on the design of a new assignment mechanism. This paper describes some of the difficulties with the current mechanism and some elements of the design and evaluation of possible replacement mechanisms. School choice in Boston has been partly shaped by desegregation. In 1974, Judge W. Arthur Garrity ordered busing for racial balance. In 1987, the U.S. Court of Appeals freed BPS to adopt a new, choice-based assignment plan. In 1999 BPS eliminated racial preferences in assignment and adopted the current mechanism.

Accountability and Flexibility in Public Schools: Evidence from Boston's Charters And Pilots

Charter schools are publicly funded but operate outside the regulatory framework and collective bargaining agreements characteristic of traditional public schools. In return for this freedom, charter schools are subject to heightened accountability. This paper estimates the impact of charter school attendance on student achievement using data from Boston, where charter schools enroll a growing share of students. We also evaluate an alternative to the charter model, Bostons pilot schools. These schools have some of the independence of charter schools, but operate within the school district, face little risk of closure, and are covered by many of same collective bargaining provisions as traditional public schools. Estimates using student assignment lotteries show large and significant test score gains for charter lottery winners in middle and high school. In contrast, lottery-based estimates for pilot schools are small and mostly insignificant. The large positive lottery-based estimates for charter schools are similar to estimates constructed using statistical controls in the same sample, but larger than those using statistical controls in a wider sample of schools. The latter are still substantial, however. The estimates for pilot schools are smaller and more variable than those for charters, with some significant negative effects.

The Dynamics of Open Source Contributors

Traditional innovative efforts result in intellectualproperty and results that are controlled by private firms. In contrast,open-source projects yield data that is available for public use with certainrestrictions. Individuals and for-profit firms who contribute to open-sourceprojects must make their improvements to the original project known andavailable to the public. This research investigates the impact of offerings to open source softwareprojects. A literature review discusses issues regarding contributions tosoftware, as well as the economic motivations behind open-source contributions.A panel data set, consisting of approximately 100 open source projects, wascompiled from information garnered from SourceForge, press searches, andproject websites. The number of different references to each individual involved in eachrespective project was tabulated. Individual contributors were furtherdifferentiated into five categories, based upon whether their contribution wasdone on their own behalf or as a function of their employment.Determinedby their email addresses, the contributors categories included corporateemployees, individual hobbyists, unidentified international contributors,non-profit employees, and technical website contributors. The researchers indicate that this study acts as an initial examination ofthe time series patterns of open source contributions, with the resultsindicating that the distribution of corporate contributions tends to be moresubstantialin large, growing projects. (AKP)

Lotteries in Student Assignment: An Equivalence Result

This paper formally examines two competing methods of conducting a lottery in assigning students to schools, motivated by the design of the centralized high school student assignment system in New York City. The main result of the paper is that a single and multiple lottery mechanism are equivalent for the problem of allocating students to schools in which students have strict preferences and the schools are indifferent. In proving this result, a new approach is introduced, that simplifies and unifies all the known equivalence results in the house allocation literature. Along the way, two new mechanisms -- Partitioned Random Priority and Partitioned Random Endowment -- are introduced for the house allocation problem. These mechanisms generalize widely studied mechanisms for the house allocation problem and may be appropriate for the many-to-one setting such as the school choice problem.

How Individual Preferences are Aggregated in Groups: An Experimental Study

This paper experimentally investigates how individual preferences, through unrestricted deliberation, get aggregated into a group decision in two contexts: reciprocating gifts, and choosing between lotteries. In both contexts we find that median group members have a significant impact on the group decision, but particular other members also have some influence. Non-median members closer to the median tend to have more influence than other members. By investigating the same individual’s influence in different groups, we find evidence for relative position in the group having a direct effect on influence. We do not find evidence that group choice exhibits a shift in a particular direction that is independent of member preferences and caused by the group decision context itself. We also find that group deliberation not only involves bargaining and compromise, but it also involves persuasion: preferences tend to shift towards the choice of the individual’s previous group, especially for those with extreme individual preferences.

The Effects of Mandatory Transparency in Financial Market Design: Evidence from the Corporate Bond Market

Many financial markets have recently become subject to new regulations requiring transparency. This paper studies how mandatory transparency affects trading in the corporate bond market. In July 2002, TRACE began requiring the public dissemination of post-trade price and volume information for corporate bonds. Dissemination took place in Phases, with actively traded, investment grade bonds becoming transparent before thinly traded, high-yield bonds. Using new data and a differences-in-differences research design, we find that transparency causes a significant decrease in price dispersion for all bonds and a significant decrease in trading activity for some categories of bonds. The largest decrease in daily price standard deviation, 24.7%, and the largest decrease in trading activity, 41.3%, occurs for bonds in the final Phase, which consisted primarily of high-yield bonds. These results indicate that mandated transparency may help some investors and dealers through a decline in price dispersion, while harming others through a reduction in trading activity.

What Really Matters in Designing School Choice Mechanisms

In the last decade, numerous student assignment systems have been redesigned using input from economists in the large American cities and elsewhere. This article reviews some of these case studies and uses practical experiences to take stock on what has really mattered in school choice mechanism design so far. While some algorithm design details are important, many are less practically important than initially thought. What really matters are basic issues that market operators in other contexts would likely be concerned about: straightforward incentives, transparency, avoiding inefficiency through coordination and well-functioning aftermarkets, and influencing inputs to the design, such as applicant decision-making and the quality of schools. INTRODUCTION In recent years, there has been a great deal of research activity and excitement among economists who study the design of systems used to assign students to schools. Motivated by Turkish college admissions, Balinski and Sonmez (1999) first defined the student placement problem, and Abdulkadiroglu and Sonmez (2003) defined the closely related school choice problem, motivated by K-12 public school admissions in the United States. Both articles showed how insights from matching theory could be used to re-engineer and potentially improve existing centralized school assignment systems. Abdulkadiroglu and Sonmez (2003) proposed two alternativemechanisms, which are adaptations of widely studied mechanisms in the literature on matching and assignment markets, following seminal contributions by Gale and Shapley (1962) and Shapley and Scarf (1974). Since that article was published, I have been involved in a number of efforts to redesign school choice systems, including those in New York City (2003), Boston (2005), New Orleans (2012), Denver (2012), Washington DC (2013), and Newark (2014). New systems have also been developed in England, Amsterdam, a number of Asian cities, and elsewhere. The purpose of this article is to review some facts from the field about these redesign efforts and to take stock on what I think has been important in practice so far. This article is not a survey of research on school choice market design (for surveys see, e.g., Pathak, 2011 and Abdulkadiroglu and Sonmez, 2013). My inspiration comes from Klemperer (2002), who presents his views on what matters for practical auction design based on his experience in designing auctions and advising bidders. Klemperer concludes that “in short, good auction design is mostly good elementary economics,” whereas “most of the extensive auction literature is of second-order importance for practical auction design.”

Pegs, Risk Management, and Financial Crises

The paper builds a simple, micro-founded model of exchange rate management, speculative attacks, and exchange rate determination. The country can pick an ambitious peg in an attempt to signal a strong currency and thereby attract foreign capital or boost future re-election prospects. The peg, however, triggers speculative attacks that the country must withstand for the signal to remain credible. Maintaining the peg is costly to a country with an overvalued currency as it must sell the foreign currency at an unfavorable rate. We show that speculative activities can exhibit strategic complementarity or substitutability. We then relate the pegs ambition and the size of the ensuing speculative attack to the markets prior beliefs about the strength of the currency, the ability of foreign speculators to short sell the currency, domestic politics, and the initial debt composition. Finally, the model predicts that pegs and features of original sin emerge concurrently. Country hedging is endogenously incomplete as letting the residents hedge is a clear admission that the currency is overvalued by the market and makes any complementary attempt at exchange rate management futile. Similarly, we show that a peg may make domestic borrowers eager to issue short-term liabilities so as to provide foreign investors with an advantageous exit option. Furthermore, the government does not incentivize firms to lengthen the maturity structure even when it wants to because doing so would again be an open admission of a future depreciation.

Reserve Design: Unintended Consequences and the Demise of Boston's Walk Zones

We show that in the presence of admissions reserves, the effect of the precedence order (i.e., the order in which different types of seats are filled) is comparable to the effect of adjusting reserve sizes. Either lowering the precedence of reserve seats at a school or increasing the school’s reserve size weakly increases reserve-group assignment at that school. Using data from Boston Public Schools, we show that reserve and precedence adjustments have similar quantitative effects. Transparency about these issues—in particular, how precedence unintentionally undermined intended policy—led to the elimination of walk zone reserves in Boston’s public school match.