Manna from Heaven or Forty Years in the Desert: Optimal Allocation Without Transfer Payments

Abstract

Often an organization, government or entity must allocate goods without collecting payment in return. This may pose a difficult problem when agents receiving those goods have private information in regards to their values or needs or discriminating among agents is not an option. In this paper, we search for an optimal mechanism to allocate goods when the designer is benevolent. While the designer cannot charge agents, he can receive a costly but wasteful signal from them. We show that for a large class of distributions of valuations, ignoring these costly signals by giving agents equal share (or using lotteries if the goods are indivisible) maximizes the social surplus. In other cases, those that send the highest signal should receive the goods; however, we then show that there exist cases where more complicated mechanisms are superior.

Keywords: Mechanism Design, Lotteries

JEL Classification: C70, D44, D89