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Efficient assignment mechanisms for liquidity-constrained agents

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  • Che, Yeon-Koo
  • Gale, Ian
  • Kim, Jinwoo

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.

Suggested Citation

  • Che, Yeon-Koo & Gale, Ian & Kim, Jinwoo, 2013. "Efficient assignment mechanisms for liquidity-constrained agents," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 659-665.
    • Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:659-665
    DOI: 10.1016/j.ijindorg.2013.02.005
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    References listed on IDEAS

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    1. Susan Athey & Dominic Coey & Jonathan Levin, 2013. "Set-Asides and Subsidies in Auctions," American Economic Journal: Microeconomics, American Economic Association, vol. 5(1), pages 1-27, February.
    2. Pitchik, Carolyn, 2009. "Budget-constrained sequential auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 66(2), pages 928-949, July.
    3. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
    4. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    5. Yeon-Koo Che & Ian Gale, 1998. "Standard Auctions with Financially Constrained Bidders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(1), pages 1-21.
    6. Maskin, Eric S., 2000. "Auctions, development, and privatization: Efficient auctions with liquidity-constrained buyers," European Economic Review, Elsevier, vol. 44(4-6), pages 667-681, May.
    7. Condorelli, Daniele, 2013. "Market and non-market mechanisms for the optimal allocation of scarce resources," Games and Economic Behavior, Elsevier, vol. 82(C), pages 582-591.
    8. Yeon-Koo Che & Ian Gale & Jinwoo Kim, 2013. "Assigning Resources to Budget-Constrained Agents," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(1), pages 73-107.
    9. , & ,, 2006. "Revenue comparisons for auctions when bidders have arbitrary types," Theoretical Economics, Econometric Society, vol. 1(1), pages 95-118, March.
    10. Hafalir, Isa E. & Ravi, R. & Sayedi, Amin, 2012. "A near Pareto optimal auction with budget constraints," Games and Economic Behavior, Elsevier, vol. 74(2), pages 699-708.
    11. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
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    Cited by:

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    3. Holzer, Jorge & McConnell, Kenneth, 2023. "Extraction rights allocation with liquidity constraints," Resource and Energy Economics, Elsevier, vol. 71(C).

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    More about this item

    Keywords

    Liquidity-constrained agents; Lottery; Random rationing; Resale; Cash subsidy; Optimal mechanism;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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