DP16491 Who Cares More? Allocation with Diverse Preference Intensities

Author(s):	Pietro Ortoleva, Evgenii Safonov, Leeat Yariv
Publication Date:	August 2021
Keyword(s):	Allocation Problems, market design, mechanism design
JEL(s):	C78, D02, D47
Programme Areas:	Public Economics, Industrial Organization, Organizational Economics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=16491

Goods and services---public housing, medical appointments, schools---are often allocated to individuals who rank them similarly but differ in their preference intensities. We characterize optimal allocation rules when individual preferences are known and when they are not. Several insights emerge. First-best allocations may involve assigning some agents "lotteries" between high- and low-ranked goods. When preference intensities are private information, second-best allocations always involve such lotteries and, crucially, may coincide with first-best allocations. Furthermore, second-best allocations may entail disposal of services. We discuss a market-based alternative and show how it differs.