23 Pages Posted: 15 Feb 2017
Date Written: February 13, 2017
We propose a simple and practical "raffle" mechanism for allocating a limited supply of heterogeneous goods among unit demand consumers. While the mechanism is inspired by the common "tricky tray" raffle and a housing allocation system in Singapore, it has not been analyzed before, perhaps because of the subtle structure of its exact equilibria. Every consumer is given perfectly divisible "tickets" she can place into a fully transparent "bucket" for any of the goods. Once all consumers are satisfied with their allocations given others', the administrator sequentially pulls tickets from the bucket that is most popular relative to available prizes until these are exhausted. We propose a notion of approximate Pareto efficiency and show that with a continuum of consumers, raffles are approximately Pareto efficient, in contrast to standard ordinal mechanisms which may achieve arbitrarily large losses of cardinal welfare. In simulations, raffles appear to perform similarly to the ideal mechanism proposed by Hylland and Zeckhauser (1979), which may be challenging for unsophisticated consumers to interact with and has not been used in practice, and often better than ordinal mechanisms.
Keywords: random assignment, cardinal utility, raffles, approximate Pareto efficiency, price of anarchy
JEL Classification: D47, D61, C78, D82, C62, C68
Suggested Citation: Suggested Citation