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Optimal Pricing of Public Lotteries and Comparison of Competing Mechanisms

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  • David Scrogin

    ()
    (University of Central Florida, Orlando, FL)

  • Chen Ling

    ()
    (Southwestern University of Finance and Economics, Chengdu, Sichuan, China)

Abstract

The negative effects of price controls on consumer surplus in competitive markets are well known. But what of consumer surplus if supply is fixed, as with rival but otherwise non-excludable goods held in public trust? This paper establishes optimal pricing rules for rationing indivisible units of such goods by lottery or mixture of a lottery and auction. The solution to the pricing problem appears in classic inverse elasticity form that may be directly implemented. Analysis of a rich class of private value distributions indicates the optimal lottery yields sizable gains in expected consumer surplus over competitive pricing and zero pricing.

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Bibliographic Info

Paper provided by University of Central Florida, Department of Economics in its series Working Papers with number 2012-05.

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Length: 28 Pages
Date of creation: Sep 2012
Date of revision:
Handle: RePEc:cfl:wpaper:2012-05

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Keywords: lotteries; price control; surplus;

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  11. Evans, Mary F. & Vossler, Christian A. & Flores, Nicholas E., 2009. "Hybrid allocation mechanisms for publicly provided goods," Journal of Public Economics, Elsevier, vol. 93(1-2), pages 311-325, February.
  12. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages S285-300, October.
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  14. Buschena, David E. & Anderson, Terry L. & Leonard, Jerry L., 2001. "Valuing Non-Marketed Goods: The Case of Elk Permit Lotteries," Journal of Environmental Economics and Management, Elsevier, vol. 41(1), pages 33-43, January.
  15. Scrogin, David, 2005. "Lottery-rationed public access under alternative tariff arrangements: changes in quality, quantity, and expected utility," Journal of Environmental Economics and Management, Elsevier, vol. 50(1), pages 189-211, July.
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