Mechanism design for unequal societies

Groh, Carl-Christian ; Reuter, Marco

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URN: urn:nbn:de:bsz:180-madoc-663486
Document Type: Working paper
Year of publication: 2023
The title of a journal, publication series: ZEW Discussion Papers
Volume: 23-050
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: D44 , D47 , D61 , D63 , D82,
Keywords (English): optimal mechanism design , redistribution, inequality , auctions
Abstract: We study optimal mechanisms for a utilitarian designer who seeks to assign a finite number of goods to a group of ex ante heterogeneous agents with unit demand. The agents have heterogeneous marginal utilities of money, which may naturally arise in environments where agents have different wealth levels or financing conditions. We show that the utilitarian optimal allocation rule deviates from the ex post efficient allocation rule in two ways, namely by (1) allocating the good to agents with lower willingnesses to pay in certain situations and (2) by potentially keeping some units of the good unallocated. We also highlight how our mechanism can be implemented as an auction with minimum bids and bidding subsidies.

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