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The New Market for Federal Judicial Law Clerks
Abstract
I study a budget-constrained, private-valuation, sealed-bid sequential auction with two incompletely-informed, risk-neutral bidders in which the valuations and income may be non-monotonic functions of a bidder's type. Multiple equilibrium symmetric bidding functions may exist that differ in allocation, efficiency and revenue. The sequence of sale affects the competition for a good and therefore also affects revenue and the prices of each good in a systematic way that depends on the relationship among the valuations and incomes of bidders. The sequence of sale may affect prices and revenue even when the number of bidders is large relative to the number of goods. If a particular good, say [alpha], is allocated to a strong bidder independent of the sequence of sale, then auction revenue and the price of good [alpha] are higher when good [alpha] is sold first.
... It is especially true in competitive occupations, in which concerns over getting a nice head start on a career sometimes drive students desperate to secure their post-graduation positions quite in advance to the actual start date, even more than a year prior to completing their school programs. 1 For example, in the market for US federal judicial law clerks, law school students sometimes receive offers as early as the beginning of the students' second year ( Avery et al., 2007;2001 ). In the US gastroenterologist fellowship market, internal medical residents obtained start interviewing and make offers. ...
... 2 According to the proponents of such a regulation, job search timing matters. Questionnaire surveys on federal appellate judges reveal their concerns that information about students' ability is not fully available at the early stages of their school programs ( Avery et al., 2007;2001 ). Others are concerned that early and dispersed matching would deprive students of time devoted to classes, thereby discouraging them from investing in their own human capital (in an official request by three Japanese ministers, October 8, 2010). ...
... However, their study focuses on the impact of introducing a matching algorithm rather than the timing regulation itself, thus providing less evidence on markets that have traditionally failed to establish strong market intermediaries, such as the market for federal court clerkships in the United States. On the contrary, the evidence derived from the US law school market is limited to descriptive analyses despite numerous attempts to regulate job search timing ( Avery et al., 2007;2001 ). This paper provides one of the first evidence on the effects of changing job search horizon in entry-level labor markets. ...
In entry-level labor markets, students search for post-graduation positions well in advance of their actual start dates, prompting debates over regulating job search timing. This study examines a unique case concerning the new college graduate labor market in Japan, where a guideline revision successfully delayed the timing of job searches and forced market participants to search under a shorter horizon. Based on differential exposures to the guideline revision across regions, I find that the revision significantly increased the employment rate at graduation. No positive effect was observed on students’ human capital investment. Additional analyses offers one plausible interpretation, that the positive employment effect was driven by thick market externality.
... From beginning to end, Stage 1 may have covered a period of more than 50 years, or fewer than 1." 36 The inefficiency of early matching was particularly clear when college football teams used to be matched with bowls before they had finished playing all their regular season games: this meant that some matches were made before the match quality could be determined, which had a negative effect on television viewership (Fréchette, Roth, and Ünver 2007). 37 For a variety of approaches to understand particular aspects of early contracting and/or unraveling, such as its effect on thickness, on information, etc., and/or on market conditions that might promote or deter unraveling, see Roth and Xing (1994), Li and Rosen (1998), Li andSuen (2000, 2004), Kagel and Roth (2000), Suen (2000), Damiano, Li, and Suen (2005) Consider, for example, the markets for two of the most competitive kinds of positions for new lawyers: clerkships for appellate judges (Avery et al. 2001(Avery et al. , 2007, 38 and associate positions in the largest law partnerships Xing 1994 andRoth 2012). If someone graduating from law school this year moves into one of those positions, it is very likely that the job was arranged two years in advance (formally in the case of a clerkship, somewhat informally in case of an associate position, with the formal contract being made only one year in advance). ...
... For example, Avery et al. (2007, p. 448 This compression around first interviews made some judges try to "jump the gun," by scheduling interviews, and making offers, before the allowed time. Avery et al. (2007) report that by 2005 over one-half of the judges who responded to a survey were aware that a substantial number of judges did not adhere to the indicated dates. Nevertheless, the plan was restated each year before being officially abandoned in 2014. ...
... Markets that have long operated at 43 See also Federal Law Clerk Hiring Pilot, https://oscar.uscourts.gov/federal_law_clerk_hiring_pilot. Note that one problem documented in Avery et al. (2001Avery et al. ( , 2007 and elsewhere is that an interview with a judge is scheduled based, either implicitly or sometimes explicitly, on an understanding that the student being interviewed will accept an offer if one is made. If this feature of the market is not altered, requiring that offers remain formally open for 48 hours will not have the desired effect of allowing candidates to consider multiple offers. ...
Marketplaces are often small parts of large markets, and both markets and marketplaces come in many varieties. Market design seeks to understand what marketplaces must accomplish to enable different kinds of markets. Marketplaces can have varying degrees of success, and there can be marketplace failures. I'll discuss labor markets like the market for new economists, and also markets for new lawyers and doctors that have suffered from the unraveling of appointment dates to well before employment begins. Markets work best if they enjoy social support, but some markets are repugnant in the sense that some people think they should be banned, even though others want to participate in them. Laws banning such markets often contribute to the design of illegal black markets, and this raises new issues for market designers. I'll briefly discuss markets and black markets for narcotics, marijuana, sex, and surrogacy, and the design of markets for kidney transplants, in the face of widespread laws against (and broader repugnance for) compensating organ donors. I conclude with open questions and engineering challenges.
... unraveling, with positions for new graduates in some recent periods being filled two years before graduation (see [19][20][21]). [22] writes of the judges' perception of that market as follows: ...
... Low quality firms almost never make early offers. However, when they make mistakes and make early offers (which is a more frequent mistake in markets 1-10, never happens in market 11-15, and only rarely in markets [16][17][18][19][20], applicants tend to accept those offers (as seen in the bottom right graph of Figure 2). Only in the final markets, markets 16-20, when early offers are very rare, are they accepted only 50% of the time (though this is a very small number phenomenon). ...
... A value of 100% indicates that the matching in the lab achieved all possible gains compared to the average random full matching and is hence the matching that maximizes firm payoffs. 20 The random match payoffs and maximum sums of possible expected firm payoffs of a full matching in each treatment are given in Table 4 along with the median of the sum of actual firm payoffs (disregarding " values) and the normalized efficiency of the last five markets. We also report in the same table the predictions of SPE outcomes in terms of efficiency. ...
Markets sometimes unravel, with offers becoming inefficiently early. Often this is attributed to competition arising from an imbalance of demand and supply, typically excess demand for workers. However this presents a puzzle, since unraveling can only occur when firms are willing to make early offers and workers are willing to accept them. We present a model and experiment in which workers’ quality becomes known only in the late part of the market. However, in equilibrium, matching can occur (inefficiently) early only when there is comparable demand and supply: a surplus of applicants, but a shortage of high quality applicants.
... Third, understanding the behavior as deriving from monopsony clarifies the normative or public policy evaluation of efforts to " remedy " market timing problems. As is well known, Professor Roth has been a pioneer in designing programs matching potential employers to workers to " solve " these market timing problems, the most prominent of which is the centralized matching program for residents in various medical specialities in the U.S. and U.K. Professor Roth and his colleagues have broadly recommended extending matching programs to other markets exhibiting similar problems, recently, for example, to the market for judicial clerks (Avery, et al., 2001; 2007); and to the market for residents in gastroenterology (Niederle, Proctor & Roth, 2006). Although certainly suggested in my earlier review, this paper shows more clearly that the central effect of matching programs of this nature is to shore up and buttress these employer monopsonies, an effect that cannot generally be defended on social welfare grounds. ...
... Each stage in the backward progression in the time of hiring of federal judicial law clerks has been marked by a belief that the market will never move earlier than the present moment—that the process has reached a " natural stopping point " beyond which it will not move. (Avery, et al., 2001 at 805). ...
... In the clerkship literature, these differential non-wage benefits have been aggregated by use of the term " prestige " of a clerkship (see, e.g., Avery, et al., 2001), but " prestige " is not an economic concept and there are clear economic differences among federal appellate clerkships. 8 First, many federal appellate judges become " feeder " judges to one or more Justices of the Supreme Court, chiefly by the quality of the students they attract or by the development of a long-term relationship with a Justice. ...
This paper describes behavior in labor market monopsonies relaxing the standard assumptions of a single monoposony wage offered to homogenous workers and addressing contexts where workers differ substantially in marginal productivity - ability and skill - and employers differ substantially in their provision of non-wage benefits above the monopsony wage. The paper illustrates the analysis with a description of the market for federal judicial law clerks and for medical residents, both of which, it will be claimed, are characterized by monopsony pricing of labor.
... That is, like the gastroenterology fellows market, the law clerk market sought to replace early and diffuse hiring with hiring at a specified time a year later than had become customary. While the first four years following the new proposal succeeded in moving the hiring date, it appears that there has been substantial cheating on the precise opening time of the market, and an increase in offers that explode immediately (Avery et al. 2007). The modal respondent to the student survey reported in Avery et al. (2007) accepted an offer on the first day that offers were allowed. ...
... While the first four years following the new proposal succeeded in moving the hiring date, it appears that there has been substantial cheating on the precise opening time of the market, and an increase in offers that explode immediately (Avery et al. 2007). The modal respondent to the student survey reported in Avery et al. (2007) accepted an offer on the first day that offers were allowed. So, although the market has so far largely succeeded in controlling the dates of appointment, for many participants the market remains very thin: applicants can often consider no more than a single offer. ...
Many markets encounter difficulty maintaining a thick marketplace because they experience transactions made at dispersed times. To address such problems, many markets try to establish norms concerning when offers can be made, accepted, and rejected. Examining such markets suggests it is difficult to establish a thick market at an efficient time if firms can make exploding offers, and workers cannot renege on early commitments. Laboratory experiments allow us to isolate the effects of exploding offers and binding acceptances. In a simple experiment, we find inefficient early contracting when firms can make exploding offers and applicants' acceptances are binding. (JEL C91, D40, D81)
... Это был рынок, который сталкивался с теми же проблемами неопределенности, что и рынок труда молодых врачей. Вместе с коллегами Э. Рот опросил судей и претендентов на должности клерков, взвесил и предложил возможные решения (Avery et al., 2001(Avery et al., , 2007. Это было тем более важно, что этот рынок был не в состоянии без вмешательства извне образовать эффективный дизайн. ...
The article presents the results of research on the latest stage of world economic thought. The views of Nobel laureates in economics are analyzed: R. Mandell, a specialist in world economic relations, B. Holmstrom, a representative of the third generation of neo-institutionalism, P. Romer, a developer of endogenous growth models, E. Duflo, a prominent representative of the modern theory of development, as well as mathematical economists. E. Maskin, R. Myerson, E. Roth, R. Wilson. The views of the influential Japanese economist H. Yoshikawa are interpreted separately.
... The judicial law clerks market is known to have exploding offers-offers that are withdrawn if not accepted immediately, i.e., with deadlines equal to zero (Avery et al. 2007). 6 And the current practice for flash sales sites is to limit the sales to a period of one day to two weeks. ...
This paper investigates the interplay between offer size and offer deadline in a Stackelberg game involving a proposer and a responder. The proposer acts first by making an offer to the responder with a deadline, and the responder, concurrently following a continuous-time finite-horizon search for alternative offers, has to respond to the proposer’s offer by the deadline. Taking into account the responder’s reaction, the proposer’s optimal strategy can vary from an exploding offer—an offer that has to be accepted or rejected on the spot—to an offer with an extended deadline under different market conditions, proxied by characteristics of the alternative offer distribution. In particular, the proposer should offer an exploding offer when the alternative offer market is unfavorable to the responder, and the harsher it is, the smaller will be the offer size. By contrast, when the alternative offer market is favorable to the responder, the proposer can benefit from making a smaller (compared with the exploding offer) nonexploding offer, and the more favorable the market, the smaller will be the offer size and the longer the deadline. Our analysis is further extended to the case where the responder has private knowledge of the alternative offers’ arrival rate, and we characterize the optimal strategy for the proposer when she makes either a single offer or a menu of offers that serves as a self-selection mechanism. In the latter case, the optimal menu of offers can be implemented as a sign-up bonus type of contract.
This paper was accepted by Manel Baucells, decision analysis.
... This sort of system would breed all sorts of perverse incentives: there might be reneging on accepted offers, early 'exploding offers' (i.e. offers with rapid expiry dates), constant re-matching, inefficient early matching, unfilled school places and so on (Mongell and Roth, 1991;Avery et al., 2007;Echenique and Pereyra, 2016). While a completely decentralized approach may work reasonably well in some circumstances (e.g. ...
Once refugees are granted protection in a particular host country, there is little concern about where in that country they are settled. Yet this matters enormously for refugees' chances to prosper in the new country and for the willingness of the local community to welcome them. We propose a centralized clearinghouse-a 'two-sided matching system'-to match refugees with localities. Drawing on the success of matching in domains such as public school choice, we outline principles underlying matching-system design, and illustrate in general terms how they could be applied to refugee protection. This matching system respects the priorities and capacities of localities and gives agency to refugees. As an example, we describe in detail how such a system could work to meet the British government's commitment to resettle 20,000 Syrian refugees by 2020. © The Author 2017. Published by Oxford University Press. All rights reserved.
... Avery et al. (2001) provide empirical data and discuss possible reconstructions of the market for legal clerkships at US federal courts for graduating law students, primarily addressing the unraveling problem. In Avery et al. (2007), the authors describe the unraveling in this market and relate to the problem of exploding offers. Haruvy et al. (2006) also study dynamics and unraveling inefficiencies of law clerk matching, using experimental and computational investigations to evaluate proposed reforms to the US system. ...
Diese Dissertation besteht aus drei unabhängigen Kapiteln in den Bereichen Matching Market Design, Industrieökonomie und Wettbewerbspolitik. Kapitel 1 behandelt den Matching-Markt für juristische Referendariatsstellen in Deutschland. Wegen übermäßiger Nachfrage müssen Anwälte oft warten, bevor sie zugewiesen werden. Der aktuell verwendete Algorithmus berücksichtigt nicht die Zeitpräferenzen der Anwälte. Daher werden viele wünschenswerte Eigenschaften nicht erfüllt. Basierend auf dem matching with contracts Modell schlage ich dann einen neuen Mechanismus vor, der die Wartezeit als Vertragsterm verwendet, so dass die Mängel des gegenwärtigen Mechanismus überwunden werden können. In Kapitel 2 analysiere ich den Wettbewerb von zweiseitigen Online-Plattformen, wie sozialen Netzwerken oder Suchmaschinen. Werbetreibende zahlen Geld, um ihre Anzeigen zu platzieren, während Nutzer mit ihren privaten Daten "bezahlen", um Zugang zu der Plattform zu erhalten. Ich zeige, dass das Gleichgewichtsniveau der Datenerhebung verzerrt ist, abhängig von der Intensität des Wettbewerbs und den Targeting-Vorteilen. Weniger Wettbewerb auf jeder Marktseite führt zu mehr Datensammeln. Wenn jedoch Plattformen Geldzahlungen auf beiden Marktseiten verwenden, wird die effiziente Menge an Daten gesammelt. Kapitel 3 untersucht die dynamische Preissetzung auf Märkten für Flug- oder Reisebuchungen, auf denen Wettbewerb während einer endlichen Verkaufszeit mit einer Frist stattfindet. Unter Berücksichtigung der intertemporalen Probleme von Firmen und vorausschauenden Konsumenten hängen die Gleichgewichtspreispfade von der Anzahl der nicht verkauften Kapazitäten und der verbleibenden Verkaufszeit ab. Ich ermittle, dass mehr Voraussicht der Konsumenten die Konsumentenrente erhöht, aber die Effizienz reduziert. Ferner ist Wettbewerbspolitik besonders wertvoll, wenn die Marktkapazitäten zu hoch sind. Des Weiteren kann die ex-ante Produktion von Kapazitäten ineffizient niedrig sein.
... The judicial law clerks market is known to have exploding offers-offers that are withdrawn if not accepted immediately, i.e., with deadlines equal to zero (Avery et al. 2007). 6 And the current practice for flash sales sites is to limit the sales to a period of one day to two weeks. ...
This paper investigates the interplay between offer size and offer deadline in a Stackelberg game involving a proposer and responder. The proposer acts first by making an offer to the responder with a deadline, and the responder, concurrently following a continuous time finite-horizon search for alternative offers, has to respond to the proposer's offer by the deadline. Taking into account the responder's reaction, the proposer's optimal strategy can vary from an exploding offer---an offer that has to be accepted or rejected on the spot---to an offer with extended deadline under different market conditions, proxied by characteristics of the alternative offer distribution. In particular, the proposer should offer an exploding offer when the alternative offer market is unfavorable to the responder, and the harsher it is, the smaller the offer size. On the other hand, when the alternative offer market is favorable to the responder, the proposer can benefit from making a smaller (compared to the exploding offer) non-exploding offer, and the more favorable the market, the smaller the offer size and the longer the deadline. Our analysis is further extended to the case where the responder has private knowledge of the alternative offers' arrival rate, and we characterize the optimal strategy for the proposer when she either makes a single offer or a menu of offers that serves as a self-selection mechanism. In the latter case, the optimal menu of offers can be implemented as a sign-up bonus type of contract.
... We present the detailed evaluations in appendix Section A.2. 5 Specifically, we do not consider the models where the salary is a part of the negotiation. This is a good approximation for many entry-level labor markets where many contracts are relatively standardized [Agarwal, 2015, Avery et al., 2007, Roth, 1984]. 6 For instance, consider the matching market of entry-level hiring for college graduates. ...
Interviewing decisions often shape labor market outcomes. This paper proposes a framework
for interviewing in a many-to-one matching market where firms and graduating students
have capacity constraints on the number of interviews. While intuition suggests that relaxing
interviewing constraints should improve the market’s operation, this is not always the case. As
participants are strategic in their interviewing decisions, interviewing constraints carry subtle
implications for aggregate surplus, employment, and the distribution of welfare. We relate
the insights obtained to some features in matching markets. First, firms frequently pass over
even stellar candidates at the market’s interviewing stage and as a result, some highly-skilled
students may “fall through the cracks.” Second, relaxing students’ interviewing constraints
benefits all firms and only the best students, but it adversely impacts the lower-ranked students.
Third, this increase in capacity improves the social surplus but may decrease the number of
matched agents. This may be undesirable if a social planner cares about the number of matched
agents along with or as compared to, the social surplus. Fourth, in some cases a higher-ranked
student may be worse off than a lower-ranked student due to firms’ interviewing constraints.
We show how credible signaling can ameliorate such inefficiencies. Lastly, interviewing in the
presence of a low capacity acts as a sorting mechanism and an increase in the interviewing
capacity may even lead to a decrease in social welfare due to reduced sorting.
... The model of unraveling of matching markets and the game of suppressing grades we consider in this paper, was introduced by Ostrovsky and Schwarz [7]. There are a number of papers reporting unraveling phenomena in various matching markets from selective colleges [2], to the market for law clerks [1] that report that interviews for law clerk postings are held almost two full years prior to graduation. ...
In this paper we consider the effect of strategic behavior in matching markets as school graduates get assigned to jobs (or to further education) reacting to multiple incentives:
Companies want to hire the best students,
Students want to take the best jobs,
Schools want to help their graduating students take great jobs.
... Avery et. al. (2007) cite a 2005 applicant for federal judicial clerkships: "I received the o¤er via voicemail while I was in ‡ight to my second interview. The judge actually left three messages. First, to make the o¤er. Second, to tell me that I should respond soon. Third, to rescind the o¤er. It was a 35 minute ‡ight." ...
This paper studies the phenomenon of early hiring in entry-level labor markets (e.g. the market for gastroenterology fellowships and the market for judicial clerks) in the presence of social networks. We offer a two-stage model in which workers in training institutions reveal information on their own ability over time. In the early stage, workers receive a noisy signal about their own ability. The early information is 'soft' and non-verfiiable, and workers can convey the information credibly only to firms that are connected to them (potentially via their mentors). At the second stage, 'hard' verifiable (and accurate) information is revealed to the workers and can be credibly transmitted to all firms. We characterize the effects of changes to the network structure on the unraveling of the market towards early hiring. Moreover, we show that an efficient design of the matching procedure can prevent unraveling.
... For example, in the market for hospital-interns before 1945, appointments were even made as early as two years prior to the students' graduation and the actual employment (Roth and Xiaolin (1994)). 1 A similar situation still exists in the market for federal court clerks (Haruvy et al. (2006); Avery et al. (2007)). ...
We study the welfare effects of different types of pre-arrangements (as identified in Sonmez (1999)) under the intern-optimal and hospital-optimal stable mechanisms in matching markets. Both the mechanisms are manipulable via Type-2 pre-arrangements; they might cause inefficient outcomes to arise, and the welfare effeffects on each side are ambiguous in the sense that there might be agents from each side, apart from pre-arranging ones, being better and worse off. Then, for Type-1 pre-arrangements, due to Kojima and Pathak (2009), we know that the intern-optimal stable mechanism is immune to that type of manipulations. In contrast to this result, the hospital-optimal stable mechanism turns out to be manipulable via that way. More interestingly, they do not result in inefficient outcomes, and the welfare effects on each side are unambiguous: all hospitals (interns) are better (worse) off.
This paper reports on a case study of the assignment of students to dormitories at the Technion–Israel Institute of Technology. Two criteria are used in considering applicants. The first criterion, determined by personal socio-economic characteristics, is used to make decisions about the privilege of getting on-campus housing. The second criterion is used for the actual assignment of the students who were found eligible for on-campus housing to specific dormitories—here the priority is determined by academic seniority and academic excellence. A modification of the classic stable matching model that allows for an “entrance criterion” is developed and analyzed. In particular, a new concept of quasi-stable outcomes is introduced and an algorithm that produces such an outcome with desirable properties is described. The algorithm was implemented successfully for the assignment of students to dormitories at the Technion toward the 2004/2005 academic year.
Abstract – Italiano: Il presente contributo si propone di esaminare la figura dell’addetto all’ufficio per il processo in chiave principalmente comparata. Attraverso l’analisi di quei Paesi identificati dal Ministero della Giustizia come “esperienze positive”, quali Stati Uniti, Regno Unito, Francia e Spagna, questo studio vuole restituire un quadro complesso e complessivo della figura dell’assistente giudiziario italiano al fine di poterlo meglio inquadrare all’interno del sistema nazionale. La prima parte del contributo fornisce una panoramica generale delle finalità e degli obiettivi perseguiti da ciascuno Stato con l’introduzione della figura dell’assistente giudiziario, la cui istituzione ha mutato inevitabilmente le modalità di lavoro del giudice. Successivamente ampia attenzione sarà dedicata all’analisi dettagliata delle realtà estere. In particolare, saranno illustrati i tratti salienti dell’assistente giudiziario di ciascun paese, quali l’evoluzione normativa, le modalità di assunzione, la tipologia contrattuale di assunzione, la durata dell’incarico e le mansioni affidate a tali figure, illustrando a necessità le criticità sollevate dalla dottrina nazionale di riferimento. L’analisi e lo studio dedicato agli Stati esteri saranno utili strumenti per trarre, nelle conclusioni, riflessioni circa le possibili prospettive della figura dell’addetto all’ufficio per il processo italiano, con particolare attenzione rivolta a due aspetti particolarmente critici: la durata dell’impiego e le modalità di assunzione.
English Abstract: This contribution aims to examine the role of the Italian office for the proceedings from a primarily comparative perspective. By analyzing countries identified by the Ministry of Justice as having "positive experiences," such as the United States, the United Kingdom, France, and Spain, this study seeks to provide a comprehensive overview of the Italian judicial assistant role, placing it within the context of the national system. The first part of the paper offers a general overview of the purposes and objectives pursued by each country with the introduction of the judicial assistant role, which has inevitably changed the working methods of judges. Following this, significant attention is given to a detailed analysis of the foreign models. This includes highlighting key features of the judicial assistant role in each country, such as legislative developments, hiring procedures, types of employment contracts, duration of appointments, and the tasks assigned to these roles,while also addressing any issues raised by national doctrines. The comparative analysis of these foreign systems will serve as a valuable tool to draw conclusions about the potential future of the Italian judicial assistant. Particular attention will be paid to two critical aspects: the duration of employment and the hiring procedures.
We investigate how improving the signal quality of grades could enhance the matching of students to selective opportunities that are awarded early in academic programs. To do so, we develop methods to measure the signal quality of grades and to estimate the impact of changes to university policies on the identification of exceptional students for these opportunities. We focus on law schools, a setting where students are awarded important academic and professional opportunities after just one year of a three-year program. Using transcript data from a top law school over a 40-year period, we document large gains in identifying exceptional students if changes were made to certain personnel, course, and grading policies. Our findings provide motivation and a blueprint for how universities could leverage their internal records to ensure that fewer exceptional students miss out on selective opportunities.
In many matching markets, bargaining determines who matches with whom and on what terms. We experimentally investigate allocative efficiency and how subjects’ payoffs depend on their matching opportunities in such markets. We consider three simple markets. There are no information asymmetries, subjects are patient, and a perfectly equitable outcome is both feasible and efficient. Efficient perfect equilibria of the corresponding bargaining game exist, but are increasingly complicated to sustain across the three markets. Consistent with the predictions of simple (Markov perfect) equilibria, we find considerable mismatch in two of the markets. Mismatch is reduced but remains substantial when we change the nature of bargaining by moving from a structured experimental protocol to permitting free-form negotiations, and when we allow players to renege on their agreements. Our results suggest that mismatch is driven by players correctly anticipating that they might lose their strong bargaining positions, and by players in weak bargaining positions demanding equitable payoffs.
We interview each other about how game theory and mechanism design evolved into practical market design. When we learned game theory, games were modeled either in terms of the strategies available to the players (“noncooperative games”) or the outcomes attainable by coalitions (“cooperative games”), and these were viewed as models for different kinds of games. The model itself was viewed as a mathematical object that could be examined in its entirety. Market design, however, has come to view these models as complementary approaches for examining different ways marketplaces operate within their economic environment. Because that environment can be complex, there will be unobservable aspects of the game. Mathematical models themselves play a less heroic, stand-alone role in market design than in the theoretical mechanism design literature. Other kinds of investigation, communication, and persuasion are important in crafting a workable design and helping it to be adopted, implemented, maintained, and adapted.
We study the allocation of German lawyers to regional courts for legal trainee-ships. Because of excess demand in some regions lawyers often have to wait before being allocated. The currently used “Berlin” mechanism is not weakly Pareto efficient, does not eliminate justified envy and does not respect improvements. We introduce a mechanism based on the matching with contracts literature, using waiting time as the contractual term. The resulting mechanism is strategy-proof, weakly Pareto efficient, eliminates justified envy and respects improvements. We extend our proposed mechanism to allow for a more flexible allocation of positions over time.
This book provides the first comprehensive analysis of the impact of globalization on the Indian legal profession. Employing a range of original data from twenty empirical studies, the book details the emergence of a new corporate legal sector in India including large and sophisticated law firms and in-house legal departments, as well as legal process outsourcing companies. As the book's authors document, this new corporate legal sector is reshaping other parts of the Indian legal profession, including legal education, the development of pro bono and corporate social responsibility, the regulation of legal services, and gender, communal, and professional hierarchies with the bar. Taken as a whole, the book will be of interest to academics, lawyers, and policymakers interested in the critical role that a rapidly globalizing legal profession is playing in the legal, political, and economic development of important emerging economies like India, and how these countries are integrating into the institutions of global governance and the overall global market for legal services.
We examine a dynamic, two‐sided, one‐to‐one matching market, where agents on both sides interact over a period of time. We define and identify sufficient conditions for the existence of a dynamically stable matching, which may require revisions to initial assignments. A generalization of the deferred acceptance algorithm can identify dynamically stable outcomes in a large class of economies, including cases with inter‐temporal preference complementarities. We relate our analysis to market unraveling and to common market design applications, including the medical residency match.
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In consumer goods markets, theory shows that it is generally profitable for sellers to use search-deterrence strategies to alter buyer search. These results rely on agents’ reacting solely to the economic content of these pressure tactics, ignoring any behaviorally based responses search deterrence may evoke. To test the validity of this assumption, this paper examines an experimental market where profit-maximizing strategy dictates that sellers should exercise one form of search deterrence, exploding offers. Sellers demonstrate a reluctance to use such offers against human buyers, but they are less reluctant to use them against computerized buyers. Human buyers are three times more likely to deviate from optimal strategy by rejecting rather than accepting these offers. Survey responses are consistent with other-regarding-preference-based reasons for sellers’ actions but not buyers’. Taken together, these results suggest the benefits of tactics that rely on pressuring decision-makers may be more nebulous than previously thought.
While scholars have shown that well-connected applicants are advantaged in selection processes, less understood is whether such applicants produce important returns to the organization when key decision makers favor them. We begin to address this gap by investigating whether and why application endorsements―an informal practice whereby certain individuals (i.e., endorsers) advocate for particular applicants―affect organizational selection during the screening of applicants. Through the analysis of the population of 21,324 applicants to a full-time MBA program over a seven-year period, we find that even after controlling for individual qualifications and competencies, endorsed applicants are advantaged over non-endorsed applicants in admissions interview and offer decisions. In seeking to explain this advantage, we develop and test four key theoretical explanations pertaining to the potential returns on application endorsements for the organization. We find inconsistent evidence that endorsed applicants are “better qualified” compared with non-endorsed applicants during screening: while endorsed applicants are sometimes assessed to be stronger “on paper,” they generally receive lower competency assessments than non-endorsed applicants later, during the admissions interviews. Further, our analysis of data on matriculating MBA students reveals that those endorsed as applicants are not “better performers” academically (measured by grade point average) or in the job market after graduation (measured by full-time salaries or signing bonuses) compared with non-endorsed individuals. In contrast, individuals endorsed as applicants appear to be “better citizens” upon joining the organization—in our research setting, they are more likely to participate in student club leadership roles than non-endorsed individuals. We also find that they are “better alumni”―that is, they make larger monetary donations to the school after graduating than their non-endorsed counterparts. We conclude with implications for understanding the impact of application endorsements on labor and educational markets.
Market design seeks to translate economic theory and analysis into practical solutions to real-world problems. By redesigning both the rules that guide market transactions and the infrastructure that enables those transactions to take place, market designers can address a broad range of market failures. In this paper, we illustrate the process and power of market design through three examples: the design of medical residency matching programmes; a scrip system to allocate food donations to food banks; and the recent 'Incentive Auction' that reallocated wireless spectrum from television broadcasters to telecoms. Our lead examples show how effective market design can encourage participation, reduce gaming, and aggregate information, in order to improve liquidity, efficiency, and equity in markets. We also discuss a number of fruitful applications of market design in other areas of economic and public policy.
We study the influence of external referrals in the hiring process by estimating a discrete choice hiring model that treats applicants as a differentiated products. We posit that referrals can provide better information about the same attributes of an applicant as a public signal, and hypothesize that referrals aid the hiring process by reducing the extent to which organizations need to rely on public signals. We find empirical support for our hypothesis in the context of Supreme Court law clerks using a rare data set that identifies all potential applicants and establishes ties between the hiring managers and applicants' referrals.
Matching is the part of economics concerned with who transacts with whom, and how. Models of matching, starting with the Gale–Shapley deferred acceptance algorithm, have been particularly useful in studying labour markets and in helping design clearing houses to fix market failures. Studying how markets fail also gives us insight into how marketplaces work well. They need to provide a thick, uncongested market in which it is safe to participate. Clearing houses that do this have been designed for many entry-level professional labour markets, for the assignment of children to public schools, and for exchange of live-donor kidneys for transplantation.
Many two-sided matching markets tend to unravel in time with transactions becoming inefficiently early. In a two-period decentralized model, this paper shows that when a market culture allows firms to make exploding offers, unraveling is more likely to occur and lead to a less socially desirable matching outcome. However, the use of exploding offers is only a necessary but not a sufficient condition for unraveling to occur. A market with an excess supply of labor is less vulnerable to the presence of exploding offers; yet the conclusion is ambiguous for a market with a larger uncertainty in early stages, which depends on the specific information structure. While a banning policy on exploding offers tends to be supported by high quality firms and workers, it can be opposed by those of low qualities. This explains the prevalence of exploding offers in practice.
Scientific popularizer and railway economist, Lardner was born in Dublin on 3 April 1793 and died on 29 April 1859. He was educated at Trinity College, Dublin, between 1817 and 1827 and is probably best known for his Cabinet Cyclopaedia of 133 volumes, published between 1829 and 1849. Although Lardner’s series was graced by a number of distinguished contributors, he was satirized in the scientific community as ‘Dionysius Diddler’. An astronomer as well as an essayist on numerous scientific topics, Lardner often took side trips into other fields. He studied railway engineering in Paris, and was probably well acquainted with the econo-engineering work at the Ecole des Ponts et Chaussées at a time when Jules Dupuit was actively pursuing economic topics. His sole work relating to economics, Railway Economy (1850), was filled with the kind of factual work and analysis being undertaken by the French engineers and by an American pupil of the Ecole, Charles Ellet. Lardner’s work caught the eye of W.S. Jevons, who claimed that a reading of Railway Economy in 1857 led him to investigate economics in mathematical terms.
Generalized best-matching refers to matching the elements of two or more sets, on a many-to-one or many-to-many basis, with respect to their mutual preferences and capacity requirements/limits. Generalized best-matching problem (BMP) has a variety of applications in areas such as team and network design, scheduling, transportation, routing, production planning, facility location, allocation, and logistics. The problem is indeed analogous to the capacitated clustering problem, where a set of individuals are partitioned into disjoint clusters with certain capacities. This work defines, formulates, and analyzes an important behavior associated with the generalized BMP: The mutual influence of the elements of the same set on each other's preferences, if matched to the same element of the other set. Such preferences are referred to as interdependent preferences (IP). A binary program is developed to formulate the problem and provide the basis for analyzing the impact of IP on generalized best-matching decisions from two perspectives: Optimal cluster formation (fixed sets) and evolution (emergent sets). A set of evolutionary algorithms is then developed to handle the complexity of the cluster formation problem, and enable the network of clusters to autonomously adapt to random changes, recover, and evolve. Results from several experiments indicate (a) significant impact of IP on the optimality of cluster formation and evolution decisions, and (b) efficiency of the developed evolutionary algorithms in handling the problem's complexity, and the emergent behavior of matching.
This paper studies the phenomenon of early hiring in entry-level labor markets affected by social networks. We offer a model in which information is revealed over time. At first, workers have noisy information about their own ability. The early information is ‘soft’ and non-verifiable, and workers can convey the information credibly only to firms that are connected to them. Later on, ‘hard’ accurate verifiable information becomes available. We characterize the effects of changes to the network structure on the unraveling of the market towards early hiring. Moreover, we show that an efficient design of the matching procedure can prevent unraveling.
Federal investigators must obtain permission from two authorities before wiretapping suspects: first from the Department of Justice (DOJ) and then from a court. The DOJ imposes a higher standard on the use of wiretaps than courts do, and, as a result, all wiretap applications reaching federal judges are legally sufficient and receive judicial approval. In this setting, prosecutors have no incentive to seek review from favorable judges, and a judge’s identity should not correlate with the number of wiretap applications received. The paper tests this prediction using all wiretaps in federal criminal investigations during the years 1997–2007. Consistent with the prediction, judicial characteristics such as ideology and prior professional experience do not influence the number of wiretap applications a judge receives. But African American judges receive substantially fewer wiretap applications, even after numerous judicial and district characteristics are controlled for. The paper investigates several potential explanations for this disparity.
This note describes the unraveling of transaction dates in several markets, including the labor markets for new lawyers hired by large law firms and for gastroenterology fellows, and the market for post-season college football bowls. Together these will illustrate that unraveling can occur in markets with competitive prices, that it can result in substantial inefficiencies, and that marketplace institutions play a role in restoring efficiency. (All of these contradict the conclusions of Priest, 2010). I’ll conclude with open questions about the role of marketplace institutions and the timing of transactions.
We develop a unified and tractable theory of sudden mass movements using a continuum agent timing game. We assume that an underlying payoff-relevant fundamental "ripens", peaks at an optimal "harvest time", and then "rots". These payoffs are multiplied by a hill-shaped quantile rank reward that subsumes "greed" and "fear" — namely, greed for greater rewards that come from outlasting others, and the fear of pre-emption. In this setting, we study the symmetric Nash equilibria. Three local timing games can occur: a slow war of attrition, a slow pre-emption game, and a sudden pre-emption game, or a "rush". Rushes always exist, and are late with greedy players and early with fearful players. We relate measures of fear and greed, the timing and size of rushes, and the entry rate before and after rushes. Our theory provides an integrated understanding of seemingly unrelated phenom-ena, showing how unraveling in matching markets, liquidity runs on companies and financial bubbles all are part of the same class of problems.
Markets sometimes unravel in time, with offers becoming inefficiently early. Often this is attributed to competition arising from an imbalance of demand and supply. However this presents a puzzle, since unraveling can only occur when firms are willing to make early offers and workers are willing to accept them. We present a model and experiment in which workers' quality becomes known only in the late part of the market, but in which matching can occur (inefficiently) early (only) when there is comparable demand and supply: a surplus of applicants, but a shortage of high quality applicants. Under these circumstances, some applicants are willing to accept jobs before they know their quality, since they may remain unmatched if they turn out to have low quality. And some firms make early offers to workers, since this is their only chance of hiring a high quality worker. * The preliminary version of this study reporting pilot experiments and the latest version were presented at the ESA Meetings in Pittsburgh and Tucson, at the Winter ES Meeting in Philadelphia, and at NYU. We thank the participants for comments. Of course, all possible errors are our own responsibility. We used the Z-Tree software (Fischbacher, 2007) in our experiment. We would like to gratefully acknowledge the support of the NSF.
The large literature on costly signaling and the somewhat scant literature on preference signaling had varying success in showing the effectiveness of signals. We use a field experiment to show that even when everyone can send a signal, signals are free and the only costs are opportunity costs, sending a signal increases the chances of success. In an online dating experiment, participants can attach “virtual roses” to a proposal to signal special interest in another participant. We find that attaching a rose to an offer substantially increases the chance of acceptance. This effect is driven by an increase in the acceptance rate when the offer is made to a participant who is less desirable than the proposer. Furthermore, participants endowed with more roses have more of their offers accepted than their counterparts.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Markets sometimes unravel, with offers becoming inefficiently early. Often this is attributed to competition arising from an imbalance of demand and supply, typically excess demand for workers. However this presents a puzzle, since unraveling can only occur when firms are willing to make early offers and workers are willing to accept them. We present a model and experiment in which workers' quality becomes known only in the late part of the market. However, in equilibrium, matching can occur (inefficiently) early only when there is comparable demand and supply: a surplus of applicants, but a shortage of high quality applicants.
This note describes the unraveling of transaction dates in several markets, including the labor markets for new lawyers hired by large law firms and for gastroenterology fellows, and the market for post-season college football bowls. Together these will illustrate that unraveling can occur in markets with competitive prices, that it can result in substantial inefficiencies, and that marketplace institutions play a role in restoring efficiency. I’ll conclude with open questions about the role of marketplace institutions and the timing of transactions.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
This paper addresses Alvin Roth's findings of market contracting at times earlier than optimal for market participants, which Roth describes as market "unraveling," a market failure he proposes to solve by designing centralized buyer-seller matching programs. This paper shows that, while Roth's engineering solutions are ingenious, the early contracting phenomena derive from labor market monopsony. Under monopsony, price is unavailable to clear the market; time of contract becomes the currency for working out market forces. Roth's matching serves to shore up the monopsony and would be unnecessary if the monopsony were removed; a superior solution is to end the monopsony. (c) 2010 by The University of Chicago. All rights reserved..
This essay discusses some things we have learned about markets, in the process of designing marketplaces to fix market failures. To work well, marketplaces have to provide thickness, i.e. they need to attract a large enough proportion of the potential participants in the market; they have to overcome the congestion that thickness can bring, by making it possible to consider enough alternative transactions to arrive at good ones; and they need to make it safe and sufficiently simple to participate in the market, as opposed to transacting outside of the market, or having to engage in costly and risky strategic behavior. I’ll draw on recent examples of market design ranging from labor markets for doctors and new economists, to kidney exchange, and school choice in New York City and Boston.// El presente artículo analiza algunas cosas que hemos aprendido acerca de los mercados durante el proceso de diseñar mercados para subsanar sus fallas. Para poder funcionar bien los mercados deben ofrecer densidad, es decir, necesitan atraer una proporción suficientemente grande de los participantes potenciales en el mercado; tienen que superar la congestión que la densidad puede traer consigo, al hacer posible que se consideren suficientes transacciones distintas para llegar a las más atinadas, y necesitan hacer que participar en el mercado sea algo seguro y suficientemente sencillo, comparado con realizar transacciones fuera del mercado o tener que implicarse en comportamientos estratégicos costosos y riesgosos. Me basaré en ejemplos recientes del diseño de mercados que van desde los mercados laborales para médicos y economistas recién egresados, hasta el intercambio de donantes de riñón y la elección de escuelas en Nueva York y Boston.
Rights of first refusal are contract clauses intended to provide the holder of a license or lease with some protection when the contract ends. The simplest version gives the right holder the ability to act after potential competitors. However, another common implementation requires the right holder to accept or reject some offers before potential competitors are given the same offer, and, if the right holder rejects the initial offer, allows the right to be exercised affirmatively only if competitors are subsequently offered a better deal (e.g. a lower price).We explore, theoretically and experimentally, the impact this latter form of right of first refusal can have on the outcome of negotiation. Counterintuitively, this “right” of first refusal can be disadvantageous to its holder. This suggests that applied contract design may benefit from the same kind of attention to detail that has begun to be given to practical market design.
In September 1993 the Judicial Conference of the United States unanimously adopted the following resolution: The Judicial Conference recognizes as the Benchmark Starting Date for clerkship interviews March 1 of the year preceding the year in which the clerkship begins. As submitted to the Judicial Conference, the resolution contained the following explanatory note: The Benchmark Starting Date is not meant to be binding. The Conference expects that judges will make a good faith effort not to interview candidates before that date, but special circumstances might sometimes call for an earlier interview. This Benchmark Starting Date will be made known to the law schools, with the suggestion that faculties be urged not to transmit letters of recommendation until approximately February 1, which is about the time when third semester grades are available. The suggestion will also be made that law schools advise students that they are not obliged to accept the first offer tendered (there being widespread confusion on this point).
In September of 1998, the Judicial Conference of the United States abandoned as unsuccessful the attempt—the sixth since 1978—to regulate the dates at which law students are hired as clerks by Federal appellate judges. The market promptly resumed the unraveling of appointment dates that had been temporarily slowed by these efforts. In the academic year 1999–2000 many judges hired clerks in the fall of the second year of law school, almost two years before employment would begin, and before hardly any information about candidates other than first year grades was available. Hiring dates moved still earlier in the Fall of 2000 and 2001. The present paper explores proposed reforms of the market, experimentally in the laboratory, and computationally using genetic algorithms. Our results suggest that some of the special features of the judge/law-clerk market—in particular the feeling among many students and judges that students must accept offers when they are made--present obstacles to the success of the proposed reforms, including the latest reforms proposed by the judges, in 2002 and 2003. Unlike markets in which the inability to make binding contracts contributes to market failure, in the law clerk market it is the ease with which binding contracts are forged that harms efficiency.
Many markets have “unraveled” and experienced inefficient, early, dispersed transactions, and subsequently developed institutions to delay transaction timing. It has previously proved difficult, however, to measure and identify the resulting efficiency gains. Prior to 1992, college football teams were matched for post-season play up to several weeks before the end of the regular season. Since 1992, the market has reorganized to postpone this matching. We show that the matching of teams affects efficiency as measured by the resulting television viewership, and that the reorganization promoted more efficient matching, chiefly as a result of the increased ability of later matching to produce “championship” games. Economics
In September 1998, the Judicial Conference of the United States abandoned its latest attempt to regulate the timing of interviews and offers in the law clerk selection process. This paper surveys the further unraveling of the market since then, makes comparisons with other entry level professional labor markets, and evaluates some possibilities for reform.
The entry-level market for American gastroenterologists was organized by a centralized clearinghouse from 1986 to 1996. Before, and since, it has been conducted via a decentralized market in which appointment dates have unraveled to well over a year before the start of employment. We find that, both before and after the years in which the centralized clearinghouse was used, gastroenterologists are less mobile and more likely to be employed at the same hospital in which they were internal medicine residents than when the clearinghouse was in use. This suggests that the clearinghouse not only coordinates the timing of appointments but also increases the scope of the market, compared to a decentralized market with early appointments.
The potential transactions evaluated in labor markets before equilibrium is identified involve rejected offers. After an initial phase in which many offers can be made simultaneously, a new offer cannot be made until an outstanding offer is rejected, so even a small time required to process offers and rejections may cause bottlenecks. In many labor markets, this means that transactions have to be finalized before the market clears. A firm needs to consider the likelihood that its offer will be accepted, since if its offer is rejected other potential employees may become unavailable in the interim. The analysis is carried out in connection with the market for clinical psychologists. Copyright 1997 by the University of Chicago.
In the early 1900s, competition among hospitals for interns and among medical students for good internships led to increasingly early offers of internships to students. By the 1940s, appointments were often made as early as the beginning of the junior year of medical school. Hospitals thus had little information about students' performance, and students frequently had to make a final decision to accept or reject an offer without knowing which other offers might be forthcoming. From 1945 through 1951, efforts were made to enforce a uniform date for accepting offers. However, students were still faced with offers having very short deadlines, compelling them to accept or reject offers without knowing what other offers might be forthcoming. Hospitals often had to scramble for available students, since if an offer was rejected, it was often too late for them to reach their next preferred candidate. A centralized clearinghouse was thus developed as a way of alleviating this chaos and allowing a larger role to the preferences of both students and hospitals. This evolved into the current matching program, whose algorithm continues to be updated to take account of changing needs of applicants, such as growth in the number of couples who seek 2 positions in the same vicinity.
The authors use a two-period matching model with initial uncertainty about productivities of participants to analyze incentives for early contracting or unraveling. Unraveling provides insurance in the absence of complete markets but causes inefficient assignments. Unraveling is more likely the smaller the applicant pool, the smaller the proportion of more-promising applicants, and the greater the heterogeneity in the pool. Banning early contracts hurts firms and benefits less-promising applicants; the effects on more-promising applicants depend on how the gains from early contracts are shared. Ex post buyouts eliminate inefficient assignments and more-promising applicants always unravel. Copyright 1998 by American Economic Association.
Following the recently dismissed antitrust lawsuit against the National Residency Matching Program (NRMP), Jeremy Bulow and Jonathan Levin (2006) propose a simple matching model in which firms set impersonal salaries simultaneously before matching with workers, which leads to lower aggregate wages than any competitive outcome. I model a feature of the NRMP, ordered contracts, that allows firms to set several contracts while determining the order in which they try to fill them, which has different properties than standard models with multiple contracts. Furthermore, the low wages of Bulow and Levin are no longer an equilibrium, but competitive wages are. (JEL D86, J31, J41)
In the framework of bilateral assignment games, we study the set of matrices associated with assignment markets with the same core. We state conditions on matrix entries that ensure that the related assignment games have the same core. We prove that the set of matrices leading to the same core form a join-semilattice with a nite number of minimal elements and a unique maximum. We provide a characterization of the minimal elements. A sucient condition under which the join-semilattice reduces to a lattice is also given.
On Comparing Apples and Oranges: The Judicial Clerk Selection Process and the Medical Matching Model
- Annette E Clark
Clark, Annette E. 1995. On Comparing Apples and Oranges: The Judicial Clerk Selection Process and the Medical Matching Model. Georgetown Law Journal 83:1749-1797
Ending the Mad Scramble: An Experimental Matching Plan for Federal Clerkships
- Epstein
- Richard
Epstein, Richard A. 2006. Ending the Mad Scramble: An Experimental Matching Plan for Federal Clerkships. Green Bag 10:37-48