Dynamic Incentives in Centralized Matching: The Case of Japanese Daycare

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This study investigates the strategic behavior of applicants in the Japanese daycare market, where waitlisted applicants are granted additional priority points in subsequent application rounds. Utilizing data from Tokyo's Bunkyo municipality, this paper provides evidence of considerable manipulation, with parents strategically choosing to be waitlisted to enhance the likelihood of their child's admission into more selective daycare centers. I extend the static framework of school choice posited by Agarwal and Somaini (2018) to incorporate dynamic incentives and estimate a structural model that allows for reapplication if waitlisted. Empirical findings indicate that approximately 30% of applicants forgo listing safer options in their initial application, a behavior significantly pronounced among those who stand to benefit from the waitlist prioritization. Counterfactual simulations, conducted under the scenario of no additional waitlist priority, predict a 17.7% decrease in the number of waitlisted applicants and a 1.2% increase in overall welfare. These findings highlight the profound influence of dynamic incentives on applicant behavior and underscore the necessity for reevaluating current priority mechanisms.