Market versus Non-Market Assignment of Initial Ownership

39 Pages Posted: 3 May 2007

See all articles by Yeon-Koo Che

Yeon-Koo Che

Columbia University

Ian L. Gale

Georgetown University - Department of Economics

Date Written: November 28, 2006

Abstract

We study the assignment of initial ownership of a good when agents differ in their ability to pay. Selling the good at the market-clearing price favors the wealthy in the sense that they may acquire the good instead of poor buyers who value it more highly. Non-market assignment schemes, even simple random rationing, may yield a more efficient allocation than the competitive market would - if recipients of the good are allowed to resell. Schemes that favor the poor are even more desirable in that context. The ability to resell the good is critical to the results, but allowing resale also invites speculation, which undermines its effectiveness. If the level of speculation is sufficiently high, restricting resale may be beneficial.

Keywords: efficiency, non-market assignment, need-based scheme, resale, speculation

JEL Classification: D44, D45, H42, I38, K11

Suggested Citation

Che, Yeon-Koo and Gale, Ian L., Market versus Non-Market Assignment of Initial Ownership (November 28, 2006). Available at SSRN: https://ssrn.com/abstract=984121 or http://dx.doi.org/10.2139/ssrn.984121

Yeon-Koo Che (Contact Author)

Columbia University ( email )

420 W. 118th Street, 1016IAB
New York, NY 10027
United States
212-854-8276 (Phone)

HOME PAGE: http://www.columbia.edu/~yc2271

Ian L. Gale

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
(202) 687-5732 (Phone)

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