Working Paper: CEPR ID: DP16491
Authors: Pietro Ortoleva; Evgenii Safonov; Leeat Yariv
Abstract: Goods and services---public housing, medical appointments, schools---are often allocated to individuals who rank them similarly but differ in their preference intensities. We characterize optimal allocation rules when individual preferences are known and when they are not. Several insights emerge. First-best allocations may involve assigning some agents "lotteries" between high- and low-ranked goods. When preference intensities are private information, second-best allocations always involve such lotteries and, crucially, may coincide with first-best allocations. Furthermore, second-best allocations may entail disposal of services. We discuss a market-based alternative and show how it differs.
Keywords: Market Design; Mechanism Design; Allocation Problems
JEL Codes: C78; D02; D47
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| observable preferences (C91) | allocation outcomes (D63) |
| unobservable preferences (D11) | screening problem (C24) |
| screening problem (C24) | lotteries (H27) |
| lotteries (H27) | incentive compatibility (D82) |
| observable preferences (C91) | first-best allocations (D61) |
| unobservable preferences (D11) | second-best allocations (D61) |
| second-best allocations (D61) | disposal of services (L99) |