Resource Allocation with Positive Externalities

Abstract

In many allocation problems, transfers are unavailable, but incentives are partially aligned due to positive externalities. We study how a designer can exploit this alignment to allocate a resource between n agents. We identify a natural mechanism that partitions types into intervals and allocates among agents in the highest reported interval. While interim allocations are identical for all types in the same interval, the exact allocation depends on the lowest reported interval. This novel feature is a crucial source of incentives. In a class of type distributions, our mechanism is optimal. For any type distribution, our mechanism is approximately efficient when n is large.

Keywords: Mechanism Design, Interdependent Values, No Transfers

JEL Classification: D82, D44, D72