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Allocation Mechanisms with Mixture-Averse Preferences

Author

Listed:
  • David Dillenberger

    (University of Pennsylvania)

  • Uzi Segal

    (Boston College)

Abstract

Consider an economy with equal amounts of N types of goods,to be allocated to agents with strict quasi-convex preferences over lotteries. We show that ex-ante, all feasible and Pareto efficient allocations give almost all agents a binary lottery. Therefore, even if all preferences are the same, some identical agents necessarily receive different lotteries. Our results imply that many of the popular allocation mechanisms used in practice are not ex-ante efficient. Assuming the reduction of compound lotteries axiom, social welfare deteriorates by first randomizing over these binary lotteries. Full ex-ante equality can be achieved if agents satisfy the compound independence axiom.

Suggested Citation

  • David Dillenberger & Uzi Segal, 2024. "Allocation Mechanisms with Mixture-Averse Preferences," PIER Working Paper Archive 24-006, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    • Handle: RePEc:pen:papers:24-006
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    More about this item

    Keywords

    Allocation Problem; Binary Lotteries; Ex-Ante Efficiency; Matching; No-Envy; Non-Expected Utility; Quasi-Convex Preferences;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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