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Efficient assignment mechanisms for liquidity-constrained agents

  • Che, Yeon-Koo
  • Gale, Ian
  • Kim, Jinwoo

We study alternative methods of assigning scarce resources to individuals who may be liquidity-constrained. Selling the resources via auctions is increasingly popular, but that method may produce an inefficient allocation when agents are liquidity constrained. A simple non-market scheme such as random assignment does better, if resale is allowed, since individuals with a high valuation but low liquidity are more likely to be assigned initially, and recipients with low valuations will resell to those with high valuations. Similarly, a need-based assignment scheme favoring those with low liquidity enhances welfare. Lotteries with entry fees could also be desirable. The optimal mechanism displays features of the non-market schemes such as in-kind and cash subsidies.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 31 (2013)
Issue (Month): 5 ()
Pages: 659-665

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Handle: RePEc:eee:indorg:v:31:y:2013:i:5:p:659-665
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  1. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June.
  2. Daniele Condorelli, 2009. "Market and Non-Market Mechanisms for the Optimal Allocation of Scarce Resources," Discussion Papers 1483, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Jonathan Levin & Susan Athey, 2007. "Set-Asides and Subsidies in Auctions," 2007 Meeting Papers 571, Society for Economic Dynamics.
  4. Carolyn Pitchik, 2006. "Budget-Constrained Sequential Auctions with Incomplete Information," Working Papers tecipa-230, University of Toronto, Department of Economics.
  5. Che, Yeon-Koo & Gale, Ian, 2006. "Revenue Comparisons for Auctions When Bidders Have Arbitrary Types," MPRA Paper 6102, University Library of Munich, Germany.
  6. Maskin, Eric S., 2000. "Auctions, development, and privatization: Efficient auctions with liquidity-constrained buyers," European Economic Review, Elsevier, vol. 44(4-6), pages 667-681, May.
  7. Hafalir, Isa E. & Ravi, R. & Sayedi, Amin, 2012. "A near Pareto optimal auction with budget constraints," Games and Economic Behavior, Elsevier, vol. 74(2), pages 699-708.
  8. Che, Yeon-Koo & Gale, Ian, 1998. "Standard Auctions with Financially Constrained Bidders," Review of Economic Studies, Wiley Blackwell, vol. 65(1), pages 1-21, January.
  9. Laffont, Jean-Jacques & Robert, Jacques, 1996. "Optimal auction with financially constrained buyers," Economics Letters, Elsevier, vol. 52(2), pages 181-186, August.
  10. Yeon-Koo Che & Ian Gale & Jinwoo Kim, 2013. "Assigning Resources to Budget-Constrained Agents," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 73-107.
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