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Optimal Allocation With Ex-Post Verification And Limited Penalties

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  • Tymofiy Mylovanov
  • Andriy Zapechelnyuk

Abstract

We study the problem of allocating a prize to one of several agents. The social value of giving the prize to an agent is privately known by this agent. The allocation rule chooses the winner of the prize based on the agents’ reports about these values. After the prize is allocated, the social value of giving the prize to the winner becomes commonly known and the agent can be penalized for lies about the value. We show that, if the number of agents is low, the optimal allocation rule takes the form of a restricted-bid procedure; otherwise, it takes the form of a shortlisting procedure. Examples of applications of this model are grant competitions, scholarship allocations, and hiring for a fixed-salary post.

Suggested Citation

  • Tymofiy Mylovanov & Andriy Zapechelnyuk, 2016. "Optimal Allocation With Ex-Post Verification And Limited Penalties," Working Papers 2016_21, Business School - Economics, University of Glasgow.
  • Handle: RePEc:gla:glaewp:2016_21
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    References listed on IDEAS

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    1. repec:spr:etbull:v:3:y:2015:i:1:d:10.1007_s40505-014-0055-3 is not listed on IDEAS
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    More about this item

    Keywords

    mechanism design without transfers; Matthews-Border constraint; short- listing procedure; verification; limited penalty;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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