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rothperansonaer - The Redesign of the Matching Market for...

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The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design By A LVIN E. R OTH AND E LLIOTT P ERANSON * We report on the design of the new clearinghouse adopted by the National Resident Matching Program, which annually fills approximately 20,000 jobs for new physi- cians. Because the market has complementarities between applicants and between positions, the theory of simple matching markets does not apply directly. However, computational experiments show the theory provides good approximations. Fur- thermore, the set of stable matchings, and the opportunities for strategic manipu- lation, are surprisingly small. A new kind of “core convergence” result explains this; that each applicant interviews only a small fraction of available positions is important. We also describe engineering aspects of the design process. ( JEL C78, B41, J44) The entry-level labor market for new physi- cians in the United States is organized via a centralized clearinghouse called the National Resident Matching Program (NRMP). Each year, approximately 20,000 jobs are filled in a process in which graduating physicians and other applicants interview at residency pro- grams throughout the country and then compose and submit Rank Order Lists (ROLs) to the NRMP, each indicating an applicant’s prefer- ence ordering among the positions for which she has interviewed. Similarly, the residency programs submit ROLs of the applicants they have interviewed, along with the number of positions they wish to fill. The NRMP processes these ROLs and capacities to produce a match- ing of applicants to residency programs. The clearinghouse used in this market dates from the early 1950’s. It replaced a decentral- ized process that suffered a market failure when residency programs and applicants started to seek each other out individually through infor- mal channels, earlier and earlier in advance of employment, rather than waiting to participate in the larger market. (By the 1940’s, contracts were typically being signed two years in ad- vance of employment.) Although the matching algorithm has been adapted over time to meet changes in the structure of medical employ- ment, roughly the same form of clearinghouse market mechanism has been used since 1951 (see Roth, 1984). The kind of market failure that gave rise to this clearinghouse has since been seen in many markets (Roth and Xiaolin Xing, 1994), a number of which have also organized clearinghouses in response. In the mid 1990’s, in an environment of rap- idly changing health-care financing with many implications for the medical labor market, the market began to suffer a crisis of confidence concerning whether the matching algorithm was unreasonably favorable to employers at the ex- pense of applicants, and whether applicants could “game the system” by strategically ma- nipulating the ROLs they submitted. The con- troversy was most clearly expressed in an exchange in Academic Medicine (Peranson and Richard R. Randlett, 1995a, b; Kevin J.
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