Strategic Disaggregation in Matching Markets

Decisions agents make before and after matching can be strategically linked through the match. We demonstrate this linkage in a game where universities either force students to commit to majors before matriculating or allow students to pick majors during their studies. The interaction between "matching forces'' (competition for higher quality students) and "principal-agent forces'' (moral hazard and adverse selection) leads to two equilibria that mirror the admissions systems in the US and England. With monetary transfers, our model provides insights into athletic scholarships. Payment caps that restricts transfers to potential athletes who decide not to play sports can maximize welfare