Redistributive Allocation Mechanisms

45 Pages Posted: 18 Jun 2020 Last revised: 9 Oct 2020

See all articles by Mohammad Akbarpour

Mohammad Akbarpour

Stanford University

Piotr Dworczak

Northwestern University - Department of Economics

Scott Duke Kominers

Harvard University

Date Written: October 9, 2020

Abstract

Many scarce public resources are allocated at below-market-clearing prices, and sometimes for free. Such "non-market" mechanisms necessarily sacrifice some surplus, yet they can potentially improve equity. In this paper, we develop a model of mechanism design with redistributive concerns. Agents are characterized by a privately observed social welfare weight and willingness to pay for quality, as well as a publicly observed label. A market designer controls allocation and pricing of a set of objects of heterogeneous quality, and maximizes the expectation of a welfare function defined by the social welfare weights. We derive structural insights about the form of the optimal mechanism, leading to a framework for determining how and when to use non-market mechanisms. The key determinant is the strength of the statistical correlation of the unobserved social welfare weights with the label and the willingness to pay that the designer can, respectively, directly observe or elicit through the mechanism.

Keywords: optimal mechanism design, redistribution, inequality, welfare

JEL Classification: C78, D47, D61, D63, D82

Suggested Citation

Akbarpour, Mohammad and Dworczak, Piotr and Kominers, Scott Duke, Redistributive Allocation Mechanisms (October 9, 2020). Available at SSRN: https://ssrn.com/abstract=3609182 or http://dx.doi.org/10.2139/ssrn.3609182

Mohammad Akbarpour

Stanford University ( email )

Piotr Dworczak

Northwestern University - Department of Economics ( email )

2003 Sheridan Road
Evanston, IL 60208
United States

Scott Duke Kominers (Contact Author)

Harvard University ( email )

Rock Center
Harvard Business School
Boston, MA 02163
United States

HOME PAGE: http://www.scottkom.com/

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