Deferred Acceptance Algorithms: History, Theory, Practice, and Open Questions. NBER Working Paper No. 13225

The deferred acceptance algorithm proposed by Gale and Shapley (1962) has had a profound influence on market design, both directly, by being adapted into practical matching mechanisms, and, indirectly, by raising new theoretical questions. Deferred acceptance algorithms are at the basis of a number of labor market clearinghouses around the world, and have recently been implemented in school choice systems in Boston and New York City. In addition, the study of markets that have failed in ways that can be fixed with centralized mechanisms has led to a deeper understanding of some of the tasks a marketplace needs to accomplish to perform well. In particular, marketplaces work well when they provide thickness to the market, help it deal with the congestion that thickness can bring, and make it safe for participants to act effectively on their preferences. Centralized clearinghouses organized around the deferred acceptance algorithm can have these properties, and this has sometimes allowed failed markets to be reorganized.