The General Dominance of Lottery Over Waiting-Line Auction

Singapore Management U, Economics and Social Sciences Working Paper No. 16-2002

35 Pages Posted: 21 Jan 2003

See all articles by Winston T.H. Koh

Winston T.H. Koh

Singapore Management University - School of Social Sciences

Zhenlin Yang

Singapore Management University

Li Jing Zhu

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Date Written: September 28, 2002

Abstract

This paper examines the allocative efficiency of two popular non-price allocation mechanisms - the lottery (random allocation) and the waiting-line auction (queue system) - for the cases where consumers possess identical time costs (the homogeneous case), and where time costs are correlated with time valuations (the heterogeneous case). We show that the relative efficiency of the two mechanisms depends critically on the scarcity factor (measured by the ratio of the number of objects available for allocation over the number of participants) and on the shape of the distribution of valuations. We obtain a set of analytical results showing that the lottery generally dominates the waiting-line auction unless the there are very few high-valuation individuals and the scarcity factor is sufficiently high. We further demonstrate that while consumer heterogeneity may improve the relative allocative efficiency of the waiting-line auction, this is usually not significant enough to reverse the general dominance of the lottery.

Keywords: Lottery, Non-price allocation, Rent-seeking, Waiting-line auction

JEL Classification: C15, D44, D61

Suggested Citation

Koh, Winston T.H. and Yang, Zhenlin and Zhu, Li Jing, The General Dominance of Lottery Over Waiting-Line Auction (September 28, 2002). Singapore Management U, Economics and Social Sciences Working Paper No. 16-2002. Available at SSRN: https://ssrn.com/abstract=355940 or http://dx.doi.org/10.2139/ssrn.355940

Winston T.H. Koh (Contact Author)

Singapore Management University - School of Social Sciences ( email )

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Zhenlin Yang

Singapore Management University ( email )

School of Economics
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Singapore, 178903
Singapore
65 68280852 (Phone)
65 68280833 (Fax)

HOME PAGE: http://www.mysmu.edu/faculty/zlyang/

Li Jing Zhu

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Clear Water Bay
Kowloon, Hong Kong
China

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