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Auction–Lottery Hybrid Mechanisms: Structural Model And Empirical Analysis

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  • Yangguang Huang
  • Quan Wen

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.

Suggested Citation

  • Yangguang Huang & Quan Wen, 2019. "Auction–Lottery Hybrid Mechanisms: Structural Model And Empirical Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 60(1), pages 355-385, February.
    • Handle: RePEc:wly:iecrev:v:60:y:2019:i:1:p:355-385
    DOI: 10.1111/iere.12356
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    Cited by:

    1. Rustamdjan Hakimov & C.-Philipp Heller & Dorothea Kübler & Morimitsu Kurino, 2021. "How to Avoid Black Markets for Appointments with Online Booking Systems," American Economic Review, American Economic Association, vol. 111(7), pages 2127-2151, July.
    2. Jianxin Rong & Ning Sun & Dazhong Wang, 2019. "A New Evaluation Criterion for Allocation Mechanisms with Application to Vehicle License Allocations in China," The Journal of Mechanism and Institution Design, Society for the Promotion of Mechanism and Institution Design, University of York, vol. 4(1), pages 39-86, November.
    3. Yu, De-Ping & Li, Zhi-Chun, 2023. "Income distribution, implementation sequence, and equity in auto ownership rationing," Transportation Research Part B: Methodological, Elsevier, vol. 173(C), pages 59-89.
    4. Holzer, Jorge & McConnell, Kenneth, 2023. "Extraction rights allocation with liquidity constraints," Resource and Energy Economics, Elsevier, vol. 71(C).
    5. Lingbo Huang & Tracy Xiao Liu & Jun Zhang, 2023. "Born to wait? A study on allocation rules in booking systems," Discussion Papers 2023-04, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

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