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Allocation Mechanisms with Mixture-Averse Preferences

Author

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  • David Dillenberger

    (University of Pennsylvania)

  • Uzi Segal

    (Boston College)

Abstract

Consider an economy with equal amounts of N types of goods, to be allocated to agents with strict quasi-convex preferences over lotteries. We show that ex-ante, all feasible and Pareto efficient al- locations give almost all agents a binary lottery. Therefore, even if all preferences are the same, some identical agents necessarily receive different lotteries. Our results imply that many of the popular alloca- tion mechanisms used in practice are not ex-ante efficient. Assuming the reduction of compound lotteries axiom, social welfare deteriorates by first randomizing over these binary lotteries. Full ex-ante equality can be achieved if agents satisfy the compound independence axiom.

Suggested Citation

  • David Dillenberger & Uzi Segal, 2024. "Allocation Mechanisms with Mixture-Averse Preferences," Boston College Working Papers in Economics 1065, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:1065
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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