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Mechanism Design with Expenditure Consideration

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  • Kiho Yoon

    ()
    (Department of Economics, Korea University, Seoul, South Korea)

Abstract

We characterize the structure of optimal assignment rules when both allocative ineffciency and expenditure ineffciency are present. We find that the optimal structure critically depends on how the hazard rate of the value distribution behaves, and that it is often optimal to use probabilistic assignment rules so that the winner of the object is not always the one with the highest valuation. We also find that the ineffciency of the optimal assignment rule decreases as the variability of value distribution increases.

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Bibliographic Info

Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 0903.

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Length: 19 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:iek:wpaper:0903

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Keywords: auctions; contests; lottery; random assignment; ineffciency;

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  1. Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2005. "Contests for Status," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 139, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  2. Edward P. Lazear & Sherwin Rosen, 1979. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc.
  3. Taylor, Grant A. & Tsui, Kevin K. K. & Zhu, Lijing, 2003. "Lottery or waiting-line auction?," Journal of Public Economics, Elsevier, Elsevier, vol. 87(5-6), pages 1313-1334, May.
  4. Chakravarty, Surajeet & Kaplan, Todd R., 2013. "Optimal allocation without transfer payments," Games and Economic Behavior, Elsevier, Elsevier, vol. 77(1), pages 1-20.
  5. Heidrun C. Hoppe & Benny Moldovanu & Aner Sela, 2009. "The Theory of Assortative Matching Based on Costly Signals," Review of Economic Studies, Oxford University Press, vol. 76(1), pages 253-281.
  6. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 87(3), pages 355-74, August.
  7. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, Springer, vol. 26(2), pages 445-469, 08.
  8. Green, Jerry R & Stokey, Nancy L, 1983. "A Comparison of Tournaments and Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(3), pages 349-64, June.
  9. Winston Koh & Zhenlin Yang & Lijing Zhu, 2006. "Lottery Rather than Waiting-line Auction," Social Choice and Welfare, Springer, Springer, vol. 27(2), pages 289-310, October.
  10. Suen, Wing, 1989. "Rationing and Rent Dissipation in the Presence of Heterogeneous Individuals," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(6), pages 1384-94, December.
  11. Erwin Amann & Wolfgang Leininger, 1995. "Expected revenue of all-pay and first-price sealed-bid auctions with affiliated signals," Journal of Economics, Springer, Springer, vol. 61(3), pages 273-279, October.
  12. Bogomolnaia, Anna & Moulin, Herve, 2001. "A New Solution to the Random Assignment Problem," Journal of Economic Theory, Elsevier, Elsevier, vol. 100(2), pages 295-328, October.
  13. Daniele Condorelli, 2009. "What money can't buy: allocations with priority lists, lotteries and queues," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1482, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Hylland, Aanund & Zeckhauser, Richard, 1979. "The Efficient Allocation of Individuals to Positions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(2), pages 293-314, April.
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Cited by:
  1. Chakravarty, Surajeet & Kaplan, Todd R., 2013. "Optimal allocation without transfer payments," Games and Economic Behavior, Elsevier, Elsevier, vol. 77(1), pages 1-20.
  2. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers, Exeter University, Department of Economics 1405, Exeter University, Department of Economics.
  3. Daniele Condorelli, 2009. "What money can't buy: allocations with priority lists, lotteries and queues," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1482, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Kleiner, Andreas & Drexl, Moritz, 2013. "Why Voting? A Welfare Analysis," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order, Verein für Socialpolitik / German Economic Association 79886, Verein für Socialpolitik / German Economic Association.
  5. Condorelli, Daniele, 2012. "What money canʼt buy: Efficient mechanism design with costly signals," Games and Economic Behavior, Elsevier, Elsevier, vol. 75(2), pages 613-624.

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