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Why do popular mechanisms lack efficiency in random environments?

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  • Kesten, Onur
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    Abstract

    We consider the problem of randomly assigning n indivisible objects to n agents. Recent research introduced a promising mechanism, the probabilistic serial that has superior efficiency properties than the most common real-life mechanism random priority. On the other hand, mechanisms based on Gale's celebrated top trading cycles method have long dominated the indivisible goods literature (with the exception of the present context) thanks to their outstanding efficiency features. We present an equivalence result between the three kinds of mechanisms, that may help better understand why efficiency differences among popular mechanisms might arise in random environments. This result also suggests that the probabilistic serial and the random priority mechanisms can be viewed as two top trading cycles based mechanisms that essentially differ in the initial conditions of the market before trading starts.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Theory.

    Volume (Year): 144 (2009)
    Issue (Month): 5 (September)
    Pages: 2209-2226

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    Handle: RePEc:eee:jetheo:v:144:y:2009:i:5:p:2209-2226

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    Web page: http://www.elsevier.com/locate/inca/622869

    Related research

    Keywords: Indivisible goods Random priority Probabilistic serial Top trading cycles Ordinal efficiency;

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    Cited by:
    1. Fuhito Kojima & M. Utku Ünver, 2010. "The 'Boston' School-Choice Mechanism," Boston College Working Papers in Economics 729, Boston College Department of Economics, revised 08 Oct 2010.
    2. Jens L. Hougaard & Juan D. Moreno-Ternero & Lars P. Osterdal, 2014. "Assigning agents to a line," Working Papers 14.01, Universidad Pablo de Olavide, Department of Economics.
    3. YIlmaz, Özgür, 2010. "The probabilistic serial mechanism with private endowments," Games and Economic Behavior, Elsevier, vol. 69(2), pages 475-491, July.
    4. Onur Kesten & Ayşe Yazıcı, 2012. "The Pareto-dominant strategy-proof and fair rule for problems with indivisible goods," Economic Theory, Springer, vol. 50(2), pages 463-488, June.
    5. Fuhito Kojima & M. Ünver, 2014. "The “Boston” school-choice mechanism: an axiomatic approach," Economic Theory, Springer, vol. 55(3), pages 515-544, April.
    6. Athanassoglou, Stergios, 2011. "Efficiency under a combination of ordinal and cardinal information on preferences," Journal of Mathematical Economics, Elsevier, vol. 47(2), pages 180-185, March.
    7. Kesten, Onur & Ünver, M. Utku, 0. "A theory of school choice lotteries," Theoretical Economics, Econometric Society.
    8. Kojima, Fuhito & Manea, Mihai, 2010. "Incentives in the probabilistic serial mechanism," Journal of Economic Theory, Elsevier, vol. 145(1), pages 106-123, January.

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