Market versus Non-Market Assignment of Ownership

Abstract

We compare different methods of assigning ownership of a good when some agents are wealth-constrained. When a good is sold at the market-clearing price, a high-wealth individual may buy it but a low-wealth (or illiquid) individual may not, even if the latter individual would have the higher valuation given equal wealth. Schemes that assign the good randomly may yield higher welfare than the competitive market would - if the recipients of the good are allowed to resell.

Need-based schemes that favor the poor are particularly desirable. The ability to resell is critical to the results, but resale induces speculators to participate, so regulation of resale may be beneficial.

Keywords: non-market assignment, rationing, resale, speculation

JEL Classification: D44, D45, H42, I38, K11