Queues, Rations and Market: Comparisons of Outcomes for the Poor and the Rich

Abstract

This paper compares the outcomes of several basic types of allocation systems which are commonly employed in developing countries and centrally planned economies to distribute certain goods among individuals. The allocation systems (to distribute the limited supply of a deficit good) that we compare are: convertible and non-convertible rations, the queue system with and without secondary trade, the bundling of goods (in which the deficit good is bundled with some other good), and non-intervention (that is, the unhindered market). Our analysis focuses on obtaining positive results: for each pair of allocation systems, we attempt to ascertain whether a specific group of individuals (particularly the rich and the poor) is better-off under one allocation system or another. The resulting insights and conclusions are valid and informative, regardless of the social criterion (or political reasons) based on which a government might choose an allocation system.

Among the results we obtain are that, for the poor, the ranking of allocation systems (from better to worse) is: convertible rations, nonconvertible rations, the queue system without secondary trade, and non-intervention. The queue system, thus, does not turn out to be relatively as beneficial to the poor as it is often thought to be. The bundling system is shown to be inferior for the poor than either convertible or non-convertible rations. The rich are found to be better-off under non-intervention than under most other allocation systems. Also, contrary to the common belief, we show that a rationing system with convertibility is not weakly Pareto superior to the one without convertibility. These and other results are notably robust not only to many of the parameters of the economy, but also to certain types of commodity taxes (and subsidies) and administrative costs.