Debopam Bhattacharya, University of Cambridge

"Discrete Choice with Congestion"

Abstract

We model discrete choice settings where capacity-constraints cause the expected utility from choosing an alternative to decline as more individuals choose it, e.g. overcrowding in rush-hour commuter trains. We discuss existence/uniqueness of equilibrium, identification of preference parameters, and distribution of welfare change brought about by switching to (i) centralized random, and (ii) centralized utilitarian allocations, which eliminate congestion but also curtail individual freedom of choice. We illustrate our methods with microdata on college choice by undergraduate applicants to Cambridge. We also suggest how to compute welfare effect of centralization in behavioral settings, where when decisionmakers systematically miscalculate expected utilities.

Contact person: Mogens Fosgerau