We develop a decentralized Bayesian model of college admissions with two ranked colleges, heterogeneous students, and two realistic match frictions: students find it costly to apply to college, and college evaluations of their applications are uncertain. Students thus face a portfolio choice problem in their application decision, while colleges choose admissions standards that act like market-clearing prices. Enrollment at each college is affected by the standards at the other college through student portfolio reallocation. In equilibrium, student-college sorting may fail: weaker students sometimes apply more aggressively, and the weaker college might impose higher standards. Applying our framework, we analyse affirmative action, showing how it induces minority applicants to construct their application portfolios as if they were majority students of higher caliber.

Journal Article General Equilibrium with a Replenishable Natural Resource Get access Vernon L. Smith Vernon L. Smith California Institute of Technology Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 41, Issue 5, December 1974, Pages 105–115, https://doi.org/10.2307/2296374 Published: 01 December 1974

Journal Article Minimization of Economic Rent in Spatial Price Equilibrium Get access Vernon L. Smith Vernon L. Smith Lafayette and Stanford Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 30, Issue 1, February 1963, Pages 24–31, https://doi.org/10.2307/2296027 Published: 01 February 1963

Charles R. Plott, Vernon L. Smith; An Experimental Examination of Two Exchange Institutions, The Review of Economic Studies, Volume 45, Issue 1, 1 February 1978

This paper presents an experimental study of a computerized “posted-offer” pricing mechanism that captures many of the basic institutional features of retail exchange in the U.S. Posted-offer market performance is evaluated relative to “double-auction” market performance using two supply and demand designs. Subject experience with the trading mechanism is explicitly considered as an experimental treatment variable. The market data suggest that prices tend to be higher and efficiency lower under posted-offer pricing relative to double auction. However, the institutional effect appears to interact with other design conditions. When feasible, the predictive power of competitive, Nash, and limit-price theoretic equilibria are empirically evaluated.