Working Paper: NBER ID: w26904
Authors: Youming Liu; Shanjun Li; Caixia Shen
Abstract: The efficiency of resource allocation is often analyzed in static frameworks with a focus on the cross-sectional heterogeneity in the willingness to pay among users. When the resource is durable in nature, the temporal heterogeneity could be important in assessing the efficiency properties of different allocation mechanisms. This paper uses a dynamic model to empirically quantify the efficiency outcome of using lotteries to allocate scarce resources among forward-looking consumers. In the context of the lottery policy for vehicle licenses in Beijing, our analysis shows that lotteries significantly affect intertemporal decisions in that households participate in lotteries at least four years earlier on average than they would be in a counterfactual environment of no quantity constraint. The welfare loss due to temporal heterogeneity and resulting changes in participation decisions accounts for over half of the total welfare loss from the lottery policy. The analysis highlights the importance of taking dynamic efficiency into account in designing resource allocation mechanisms.
Keywords: Resource Allocation; Vehicle License Lotteries; Dynamic Efficiency; Welfare Loss
JEL Codes: L51; L62; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lottery policy (H27) | timing of household participation in the lottery (H27) |
| timing of household participation in the lottery (H27) | vehicle purchases (L62) |
| lottery policy (H27) | vehicle purchases (L62) |
| temporal heterogeneity (C41) | welfare loss (D69) |
| dynamic inefficiency (D59) | welfare loss (D69) |