AUCTION–LOTTERY HYBRID MECHANISMS: STRUCTURAL MODEL AND EMPIRICAL ANALYSIS

Yangguang Huang and Quan Wen ()

International Economic Review, 2019, vol. 60, issue 1, 355-385

Abstract: This article studies an auction–lottery hybrid mechanism that is widely adopted in allocating new vehicle licenses in China. We characterize individuals' entry and bidding strategies in a symmetric Bayesian Nash equilibrium, structurally estimate individuals' value distribution from a data set of a Guangzhou program, and evaluate the performance of the mechanism. Based on the estimated distribution and counterfactual analysis, our study suggests that a hybrid mechanism preserves 83% efficiency and 52% of revenue, while it improves equity by 25 times compared to a pure auction. We show that allowing auction losers to participate in the lottery can further enhance the performance.

Date: 2019
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