Need versus Merit: The Large Core of College Admissions Markets

This paper studies the set of stable allocations in college admissions markets where students can attend the same college under different financial terms. The stable deferred acceptance mechanism implicitly allocates funding based on merit. In Hungary, where the centralized mechanism is based on deferred acceptance, an alternate stable algorithm would change the assignment of 9.3 percent of the applicants, and increase the number of assigned applicants by 2 percent. Low socioeconomic status applicants and colleges in the periphery benefit disproportionately from moving to this non-merit-based algorithm. These findings stand in sharp contrast to findings from the matching (without contracts) literature.