Redistributive Allocation Mechanisms

Many scarce public resources are allocated at below-market-clearing prices and sometimes for free. Such “nonmarket” mechanisms sacrifice some surplus, yet they can potentially improve equity. We develop a model of mechanism design with redistributive concerns. Agents are characterized by a privately...

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Bibliographic Details
Published in:The Journal of political economy 2024-06, Vol.132 (6), p.1831-1875
Main Authors: Akbarpour, Mohammad, Dworczak, Piotr, Kominers, Scott Duke
Format: Article
Language:English
Subjects:
Prices
Resource allocation
Social welfare
Willingness to pay
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Summary:Many scarce public resources are allocated at below-market-clearing prices and sometimes for free. Such “nonmarket” mechanisms sacrifice some surplus, yet they can potentially improve equity. We develop a model of mechanism design with redistributive concerns. Agents are characterized by a privately observed willingness to pay for quality, a publicly observed label, and a social welfare weight. A market designer controls allocation and pricing of a set of objects of heterogeneous quality and maximizes the expectation of a welfare function. The designer does not directly observe individuals’ social welfare weights. We derive structural insights about the form of the optimal mechanism, leading to a framework for determining how and when to use nonmarket mechanisms.
ISSN:0022-3808
1537-534X
DOI:10.1086/728111