Decisions agents make before and after matching can be strategically linked through
the match. We demonstrate this linkage in a game where universities either require students to commit to majors before matriculating or allow students to pick majors during
their studies. The interaction between “matching forces” (competition for ...
Decisions agents make before and after matching can be strategically linked through
the match. We demonstrate this linkage in a game where universities either require students to commit to majors before matriculating or allow students to pick majors during
their studies. The interaction between “matching forces” (competition for higher quality students) and “principal-agent forces” (moral hazard and adverse selection) leads
to two equilibria that mirror the admissions systems in the US and England. With
monetary transfers, our model provides insights into athletic scholarships. Payment
caps that restrict transfers to potential athletes who decide not to play sports can
maximize welfare.