Efficient assignment mechanisms for liquidity-constrained agents

Yeon-Koo Che, Ian Gale and Jinwoo Kim

International Journal of Industrial Organization, 2013, vol. 31, issue 5, 659-665

Abstract: We study alternative methods of assigning scarce resources to individuals who may be liquidity-constrained. Selling the resources via auctions is increasingly popular, but that method may produce an inefficient allocation when agents are liquidity constrained. A simple non-market scheme such as random assignment does better, if resale is allowed, since individuals with a high valuation but low liquidity are more likely to be assigned initially, and recipients with low valuations will resell to those with high valuations. Similarly, a need-based assignment scheme favoring those with low liquidity enhances welfare. Lotteries with entry fees could also be desirable. The optimal mechanism displays features of the non-market schemes such as in-kind and cash subsidies.

Keywords: Liquidity-constrained agents; Lottery; Random rationing; Resale; Cash subsidy; Optimal mechanism (search for similar items in EconPapers)
JEL-codes: D02 D45 D61 D82 H42 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:31:y:2013:i:5:p:659-665

DOI: 10.1016/j.ijindorg.2013.02.005

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