Approximately Efficient Resource Allocation: A Theoretical and Experimental Evaluation

Abstract

Matching mechanisms that elicit strength-of-preference can exhibit efficiency gains over those that do not. To quantify these gains, we propose a measure of approximate ex-ante Pareto efficiency. We use this notion to quantify the efficiency improvement of the raffles mechanism (which we define) over the deferred acceptance mechanism (DA). We complement our theoretical analyses with experimental results. Using human subjects, we find that the raffles mechanism yields higher average payoffs as predicted by the theory, despite the fact that subjects play only approximately-optimal strategies.

Keywords: random assignment, cardinal utility, raffles, approximate Pareto efficiency, price of anarchy, experimental economics

JEL Classification: D47, D61, C78, D82, C62, C68