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.