Redistributive Allocation Mechanisms

53 Pages Posted: 18 Jun 2020 Last revised: 23 Jun 2023

See all articles by Mohammad Akbarpour

Mohammad Akbarpour

Stanford University

Piotr Dworczak

Northwestern University - Department of Economics

Scott Duke Kominers

Harvard University; a16z crypto

Date Written: June 22, 2023

Abstract

Many scarce public resources are allocated at below-market-clearing prices, and sometimes for free. Such "non-market" mechanisms sacrifice some surplus, yet they can potentially improve equity. We develop a model of mechanism design with redistributive concerns. Agents are characterized by a privately observed willingness to pay for quality, a publicly observed label, and a social welfare weight. A market designer controls allocation and pricing of a set of objects of heterogeneous quality, and maximizes the expectation of a welfare function. The designer does not directly observe individuals' 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 willingness to pay.

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 (June 22, 2023). 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/

a16z crypto ( email )

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