Optimal mechanism design when both allocative inefficiency and expenditure inefficiency matter

Research output: Contribution to journalArticle

11 Citations (Scopus)

Abstract

We characterize the structure of optimal assignment rules when both allocative inefficiency and expenditure inefficiency (e.g., rent-seeking) are present. We find that the optimal structure critically depends on how the hazard rate of the value distribution behaves, and that it is often optimal to use probabilistic assignment rules so that the winner of the object is not always the one with the highest valuation. We also find that the inefficiency of the optimal assignment rule decreases as the variability of the value distribution increases.

Original languageEnglish
Pages (from-to)670-676
Number of pages7
JournalJournal of Mathematical Economics
Volume47
Issue number6
DOIs
Publication statusPublished - 2011 Dec 1

Fingerprint

Mechanism Design
Hazards
Value Distribution
Assignment
Hazard Rate
Valuation
Decrease
Allocative inefficiency
Expenditure
Inefficiency
Mechanism design

Keywords

  • Expenditure inefficiency
  • Mechanism
  • Random assignment
  • Rank-order rules
  • Winner-take-all assignment

ASJC Scopus subject areas

  • Economics and Econometrics
  • Applied Mathematics

Cite this

Optimal mechanism design when both allocative inefficiency and expenditure inefficiency matter. / Yoon, Kiho.

In: Journal of Mathematical Economics, Vol. 47, No. 6, 01.12.2011, p. 670-676.

Research output: Contribution to journalArticle

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