On the design of subsidies to solve standy-child problem

Abstract

This paper designs subsidies of local government to standby-children who wish to attend nursery schools, but are on the waiting list for nurseary school. In particular, our setting is that the childcare demand varies across districts and the total demand equals the total supply. We show that in spite of the eqaulity of demand and supply, the existence of heterogeneous preferences across schools might lead to the possibility of waiting children who does not wish to attend a non-popular school. We apply the VCG mechanism to the problem, which is known to satisfy desirable properties of strategy-proofness and efficiency, and then derive appropriate school fees and subsidies so that no children can be on the waiting list. Finally, we run a simulation to see the comparison of the VCG fees and the current fees, using as much data as we can for a particular local government.