How (Not) to Allocate Affordable Housing

51 Pages Posted: 4 May 2017 Last revised: 10 Dec 2017

Nick Arnosti

Columbia Business School - Decisions, Risk, and Operations Division

Peng Shi

University of Southern California - Marshall School of Business

Date Written: February 13, 2017

Abstract

We study a setting in which items are dynamically assigned to waiting agents. The common practice of using independent lotteries encourages agents to enter many lotteries, resulting in inefficient matching. We consider several alternatives, and reach three main conclusions.

First, systems with very different descriptions can produce identical outcomes. In particular, Independent lotteries are equivalent to a waitlist in which participants lose their position if they reject an offer; Restricting agents to enter at most one lottery is equivalent to using a waitlist in which participants keep their position after rejecting an offer, and both are equivalent to using artificial currency.

Second, when an agent’s level of need is unobservable, there is often a tradeoff between matching (assigning agents to items that are a good fit) and targeting (assigning items to agents with the greatest need).

Third, it is generally preferable to prioritize good matching over effective targeting. The exception is when most participants have very little need, and the remainder are far more desperate. In such circumstances,effective targeting can be achieved by adding friction to the assignment system.

Our findings suggest that independent lotteries are rarely advisable. We discuss the implications of our work for the allocation of affordable housing, and of discounted tickets to Broadway shows.

JEL Classification: C78, D82, D44

Suggested Citation

Arnosti, Nick and Shi, Peng, How (Not) to Allocate Affordable Housing (February 13, 2017). Columbia Business School Research Paper No. 17-52. Available at SSRN: https://ssrn.com/abstract=2963178 or http://dx.doi.org/10.2139/ssrn.2963178

Nick Arnosti (Contact Author)

Columbia Business School - Decisions, Risk, and Operations Division ( email )

3022 Broadway
New York, NY 10027
United States

Peng Shi

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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