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Why do popular mechanisms lack efficiency in random environments?

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  • Kesten, Onur

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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  • Kesten, Onur, 2009. "Why do popular mechanisms lack efficiency in random environments?," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2209-2226, September.
    • Handle: RePEc:eee:jetheo:v:144:y:2009:i:5:p:2209-2226
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    Cited by:

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    2. Onur Kesten & Morimitsu Kurino & Alexander S. Nesterov, 2017. "Efficient lottery design," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 48(1), pages 31-57, January.
    3. Fuhito Kojima & M. Ünver, 2014. "The “Boston” school-choice mechanism: an axiomatic approach," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(3), pages 515-544, April.
    4. Hugh-Jones, David & Kurino, Morimitsu & Vanberg, Christoph, 2014. "An experimental study on the incentives of the probabilistic serial mechanism," Games and Economic Behavior, Elsevier, vol. 87(C), pages 367-380.
    5. Liu, Peng, 2020. "Random assignments on sequentially dichotomous domains," Games and Economic Behavior, Elsevier, vol. 121(C), pages 565-584.
    6. Onur Kesten & Ayşe Yazıcı, 2012. "The Pareto-dominant strategy-proof and fair rule for problems with indivisible goods," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 50(2), pages 463-488, June.
    7. Ivan Balbuzanov & Maciej H. Kotowski, 2019. "Endowments, Exclusion, and Exchange," Econometrica, Econometric Society, vol. 87(5), pages 1663-1692, September.
    8. Jens Gudmundsson, 2019. "Compromises and Rewards: stable and non-manipulable probabilistic matching," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(2), pages 365-392, June.
    9. Liu, Peng & Zeng, Huaxia, 2019. "Random assignments on preference domains with a tier structure," Journal of Mathematical Economics, Elsevier, vol. 84(C), pages 176-194.
    10. YIlmaz, Özgür, 2010. "The probabilistic serial mechanism with private endowments," Games and Economic Behavior, Elsevier, vol. 69(2), pages 475-491, July.
    11. Kojima, Fuhito & Manea, Mihai, 2010. "Incentives in the probabilistic serial mechanism," Journal of Economic Theory, Elsevier, vol. 145(1), pages 106-123, January.
    12. 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.
    13. Basteck, Christian, 2018. "Fair solutions to the random assignment problem," Journal of Mathematical Economics, Elsevier, vol. 79(C), pages 163-172.
    14. Alexander Nesterov, "undated". "Fairness and Efficiency in a Random Assignment: Three Impossibility Results," BDPEMS Working Papers 2014006, Berlin School of Economics.
    15. Han, Xiang, 0. "A theory of fair random allocation under priorities," Theoretical Economics, Econometric Society.
    16. Kesten, Onur & Unver, Utku, 2015. "A theory of school choice lotteries," Theoretical Economics, Econometric Society, vol. 10(2), May.
    17. Nesterov, Alexander S., 2017. "Fairness and efficiency in strategy-proof object allocation mechanisms," Journal of Economic Theory, Elsevier, vol. 170(C), pages 145-168.
    18. Wonki Jo Cho, 2018. "Probabilistic assignment: an extension approach," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 51(1), pages 137-162, June.
    19. Cho, Wonki Jo, 2016. "When is the probabilistic serial assignment uniquely efficient and envy-free?," Journal of Mathematical Economics, Elsevier, vol. 66(C), pages 14-25.
    20. 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.
    21. Altuntaş, Açelya & Phan, William, 2022. "Trading probabilities along cycles," Journal of Mathematical Economics, Elsevier, vol. 100(C).
    22. Harless, Patrick, 2019. "Efficient rules for probabilistic assignment," Journal of Mathematical Economics, Elsevier, vol. 84(C), pages 107-116.

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