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Optimal mechanism design when both allocative inefficiency and expenditure inefficiency matter

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  • Yoon, Kiho

Abstract

We characterize the structure of optimal assignment rules when both allocative inefficiency and expenditure inefficiency (e.g., rent-seeking) are present. We find that the optimal structure critically depends on how the hazard rate of the value distribution behaves, and that it is often optimal to use probabilistic assignment rules so that the winner of the object is not always the one with the highest valuation. We also find that the inefficiency of the optimal assignment rule decreases as the variability of the value distribution increases.

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  • Yoon, Kiho, 2011. "Optimal mechanism design when both allocative inefficiency and expenditure inefficiency matter," Journal of Mathematical Economics, Elsevier, vol. 47(6), pages 670-676.
    • Handle: RePEc:eee:mateco:v:47:y:2011:i:6:p:670-676
    DOI: 10.1016/j.jmateco.2011.09.002
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    4. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    5. Moritz Drexl & Andreas Kleiner, 2018. "Why Voting? A Welfare Analysis," American Economic Journal: Microeconomics, American Economic Association, vol. 10(3), pages 253-271, August.
    6. Helmuts Āzacis & Péter Vida, 2015. "Collusive communication schemes in a first-price auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 58(1), pages 125-160, January.
    7. Chakravarty, Surajeet & Kaplan, Todd R., 2013. "Optimal allocation without transfer payments," Games and Economic Behavior, Elsevier, vol. 77(1), pages 1-20.
    8. Shunya Noda & Genta Okada, 2024. "No Screening is More Efficient with Multiple Objects," Papers 2408.10077, arXiv.org.
    9. Kwiek, Maksymilian & Marreiros, Helia & Vlassopoulos, Michael, 2016. "An experimental study of voting with costly delay," Economics Letters, Elsevier, vol. 140(C), pages 23-26.
    10. Rohit Patel & Can Urgun, 2021. "Costly Inspection and Money Burning in Internal Capital Markets," Working Papers 2021-29, Princeton University. Economics Department..
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    14. Dogan, Mustafa & Uyanik, Metin, 2020. "Welfare maximizing allocation without transfers," Economics Letters, Elsevier, vol. 195(C).
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    16. Kiho Yoon, 2018. "Optimal robust allocation of private goods," Discussion Paper Series 1803, Institute of Economic Research, Korea University.

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    More about this item

    Keywords

    Mechanism; Random assignment; Winner-take-all assignment; Rank-order rules; Expenditure inefficiency;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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