Efficiency, Justified Envy, and Incentives in Priority-Based Matching

Abstract

Top trading cycles (TTC) is Pareto efficient and strategy-proof in priority-based matching, but so are other mechanisms including serial dictatorship. We show that TTC minimizes justified envy among all Pareto-efficient and strategy-proof mechanisms in one-to-one matching. In many-to-one matching, TTC admits less justified envy than serial dictatorship in an average sense. Empirical evidence from New Orleans OneApp and Boston Public Schools shows that TTC has significantly less justified envy than serial dictatorship. (JEL C78, D61)