The Parking Lot Problem

38 Pages Posted: 2 Aug 2004

See all articles by Maria Arbatskaya

Maria Arbatskaya

Kaushik Mukhopadhaya

Emory University - Department of Economics

Eric Bennett Rasmusen

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: December 19, 2006

Abstract

Competition for access to an underpriced good such as a free parking spot can eat up its entire surplus, eliminating the social value of the good. There is a discontinuity in social welfare between enough and not enough, with the minimum social welfare at slightly too small a parking lot because of the rent-seeking efforts of drivers. Full rent dissipation occurs only when drivers have identical preferences, but allowing for heterogeneous preferences does not alter the conclusion that the welfare losses from undercapacity and overcapacity are asymmetric and that parking lots should be overbuilt. Furthermore, when it is chosen optimally under uncertainty, the parking lot size will be well in excess of mean demand, and may even be chosen to accommodate all potential drivers. Uncertainty over the number of drivers, which is detrimental in the first-best, actually increases social welfare if the parking lot size is too small.

Keywords: rent-seeking, all-pay auction, timing game, capacity size, queue.

JEL Classification: R4, L91, D72, C7

Suggested Citation

Arbatskaya, Maria and Mukhopadhaya, Kaushik and Rasmusen, Eric Bennett, The Parking Lot Problem (December 19, 2006). Available at SSRN: https://ssrn.com/abstract=571101 or http://dx.doi.org/10.2139/ssrn.571101

Kaushik Mukhopadhaya

Emory University - Department of Economics ( email )

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Eric Bennett Rasmusen

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

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HOME PAGE: http://rasmusen.org

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