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Optimal design for redistributions among endogenous buyers and sellers

Author

Listed:
  • Mingshi Kang

    (Jinan University)

  • Charles Z. Zheng

    (University of Western Ontario)

Abstract

Given a large market of individuals entitled to equal shares of a limited resource, each allowed to buy or sell the shares, we characterize the interim incentive-constrained Pareto frontier subject to market clearance and budget balance. At most two prices—partitioning the type space into at most three tiers and using rations only on the middle tier—are needed to attain any interim Pareto optimum. When the virtual surplus function satisfies a single crossing condition without having to be monotone, the optimal mechanism reduces to a single, posted price and requires neither rationing nor lump sum transfers. We find which types gain, and which types lose, when the social planner chooses a rationing mechanism over the single-price solution, as well as the welfare weight of which type is crucial to the choice. The finding suggests a market-like mechanism to distribute Covid vaccines optimally within the same priority group.

Suggested Citation

  • Mingshi Kang & Charles Z. Zheng, 2023. "Optimal design for redistributions among endogenous buyers and sellers," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1141-1180, May.
  • Handle: RePEc:spr:joecth:v:75:y:2023:i:4:d:10.1007_s00199-022-01442-4
    DOI: 10.1007/s00199-022-01442-4
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    References listed on IDEAS

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    More about this item

    Keywords

    Market design; Redistribution; Interim incentive efficiency; Interim Pareto optimality; Ironing; Rationing; Endogenous buyers and sellers; Vaccine distribution;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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