Games of Capacity Manipulation in Hospital-intern Markets

In this paper, we analyze capacity manipulation games in hospital-intern markets inspired by the real-life entry-level labor markets for young physicians who seek residencies at hospitals. In a hospital-intern market, the matching is determined by a centralized clearinghouse using the preferences revealed by interns and hospitals and the number of vacant positions revealed by hospitals. We consider a model in which preferences of hospitals and interns are common knowledge. Hospitals play a capacity-reporting game. We analyze the equilibria of the game-form under the two most widely used matching rules: hospital-optimal and intern-optimal stable rules. We show that (i) there may not be a pure strategy equilibrium in general; and (ii) when a pure strategy equilibrium exists, every hospital weakly prefers this equilibrium outcome to the outcome of any larger capacity proÞle. Finally, we present conditions on preferences to guarantee the existence of pure strategy equilibria. JEL ClassiÞcation Numbers: C72, C78, I11, J44 ∗We would like to thank Alvin Roth, Tayfun Sönmez, an associate editor and three anonymous referees of the journal for their helpful comments and suggestions which signiÞcantly improved the paper. †Address: Boston College, Department of Economics, Chestnut Hill, MA 02467, USA. E-mail: [email protected], URL: http://fmwww.bc.edu/EC-V/Konishi.fac.html ‡Address: Koç University, Department of Economics, Rumeli Feneri Yolu, Sarõyer 80910, ú Istanbul, Turkey. E-mail: [email protected], URL: http://home.ku.edu.tr/~uunver