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Efficient assignment mechanisms for liquidity-constrained agents

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

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    Bibliographic Info

    Article provided by Elsevier in its journal International Journal of Industrial Organization.

    Volume (Year): 31 (2013)
    Issue (Month): 5 ()
    Pages: 659-665

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    Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:659-665

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    Web page: http://www.elsevier.com/locate/inca/505551

    Related research

    Keywords: Liquidity-constrained agents; Lottery; Random rationing; Resale; Cash subsidy; Optimal mechanism;

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    References

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    1. Susan Athey & Dominic Coey & Jonathan Levin, 2011. "Set-Asides and Subsidies in Auctions," Discussion Papers 10-017, Stanford Institute for Economic Policy Research.
    2. Yeon-Koo Che & Ian Gale & Jinwoo Kim, 2013. "Assigning Resources to Budget-Constrained Agents," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 73-107.
    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. Che, Yeon-Koo & Gale, Ian, 2006. "Revenue comparisons for auctions when bidders have arbitrary types," Theoretical Economics, Econometric Society, vol. 1(1), pages 95-118, March.
    5. 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.
    6. Carolyn Pitchik, 2008. "Budget-Constrained Sequential Auctions with Incomplete Information," Working Papers tecipa-342, University of Toronto, Department of Economics.
    7. Che, Yeon-Koo & Gale, Ian, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 1-21, January.
    8. 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.
    9. 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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