Making Marketplaces Safe: Dominant Individual Rationality and Applications to Market Design
Benjamin N. Roth, Ran I. Shorrer
Management Science · 2021 · Volume 67 · Issue 6
Abstract
Often market designers cannot force agents to join a marketplace rather than using pre-existing institutions. We propose a new desideratum for marketplace design that guarantees the safety of participation: dominant individual rationality (DIR). A marketplace is DIR if every pre-existing strategy is weakly dominated by some strategy within the marketplace. We study applications to the design of labor markets and the sharing economy. We also provide a general construction to achieve approximate DIR across a wide range of marketplace designs. This paper was accepted by Yan Chen, decision analysis.
Keywords
market design, recruitment in two-sided marketplaces, individual rationality, safety
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