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Optimal Allocation without Transfer Payments

Author

Listed:
  • Surajeet Chakravarty

    (Department of Economics, University of Exeter)

  • Todd R. Kaplan

    (Department of Economics, University of Exeter)

Abstract

Often an organization or government must allocate goods without collecting payment in return. This may pose a difficult problem either when agents receiving those goods have private information in regards to their values or needs or when discriminating among agents using known differences is not a viable option. In this paper, we …nd an optimal mechnnism to allocate goods when the designer is benevolent. While the designer cannot charge agents, he can receive a costly but wasteful signal from them. We …nd conditions for which ignoring these costly signals by giving agents equal share (or using lotteries if the goods are indivisible) is optimal. In other cases, those that send the highest signal should receive the goods; however, we then show that there exist cases where more complicated mechanisms are superior. Finally, we show that the optimal mechanism is independent of the scarcity of the goods being allocated.

Suggested Citation

  • Surajeet Chakravarty & Todd R. Kaplan, 2010. "Optimal Allocation without Transfer Payments," Discussion Papers 1004, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:1004
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    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

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