Distributing scarce jobs and output: Experimental evidence on the effects of rationing

How does the allocation of scarce jobs and production influence their supply? We present the results of a macroeconomics laboratory experiment that investigates the effects of alternative rationing schemes on economic stability. Participants play the role of consumer-workers who interact in labor and output markets. All output, which yields a reward to participants, must be produced through costly labor. Automated firms hire workers to produce output so long as there is sufficient demand for all production. Thus, either labor hours or output units are rationed. Random queue, equitable, and priority (i.e., property rights) schemes are compared. Production volatility is the lowest under a priority rationing rule and is significantly higher under a scheme that allocates the scarce resource through a random queue. Production converges toward the high steady state under a priority rule, but can diverge to significantly low levels under a random queue or equitable rule where there is the opportunity for and perception of free-riding. At the individual level, rationing in the output market leads consumer-workers to supply less labor in subsequent periods. A model of myopic decision making is developed to rationalize the results.