  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.
