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An Analysis of Efficiency and Equity of the Car Plates Allocation Mechanism in Guangzhou
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This article presents a welfare analysis of the vehicle quota system of Shanghai, China. The empirical findings suggest that the quota system leads to both welfare loss as a result of reduction in vehicle transactions and welfare gain because of less externality of auto consumption. The net effect depends on the shadow price of the marginal externality, the assumption of vehicle lifetime, and market conditions such as consumers' intrinsic preference for vehicles. Compared to a progressive tax system, the quota system is less effective in vehicle control but more efficient in improving social welfare. © (2017) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
This book provides a comprehensive introduction to modern auction theory and its important new applications. It is written by a leading economic theorist whose suggestions guided the creation of the new spectrum auction designs. Aimed at graduate students and professionals in economics, the book gives the most up-to-date treatments of both traditional theories of ‘optimal auctions’ and newer theories of multi-unit auctions and package auctions, and shows by example how these theories are used. The analysis explores the limitations of prominent older designs, such as the Vickrey auction design, and evaluates the practical responses to those limitations. It explores the tension between the traditional theory of auctions with a fixed set of bidders, in which the seller seeks to squeeze as much revenue as possible from the fixed set, and the theory of auctions with endogenous entry, in which bidder profits must be respected to encourage participation.
Rationing mechanisms are widely used to allocate scarce resources caused by policy intervention. The effect of rationing on equilibrium usually depends on the rationing mechanism. However, stylized facts in the Chinese passenger vehicle market suggest that the quota on license plates shifts vehicle demand to the high-price end, regardless of whether rationing occurs through an auction or a lottery. This study provides a unified theoretical explanation and an empirical analysis for this finding. When the quota allocation process incurs opportunity costs, only the consumers with a high willingness-to-pay participate in the process, which shifts sales distribution to the high-price end.
Economists often favour market-based mechanisms over non-market based mechanisms to allocate scarce public resources on grounds of economic efficiency and revenue generation. When the usage of the resources in question generates type-dependent negative externalities, the welfare comparison can become ambiguous. Both types of allocation mechanisms are being implemented in China's major cities to distribute limited vehicle licences as a measure to combat worsening traffic congestion and air pollution. While Beijing employs non-transferable lotteries, Shanghai uses an auction system. This article empirically quantifies the welfare consequences of the two mechanisms by taking into account both allocation efficiency and automobile externalities post-allocation. Our analysis shows that different allocation mechanisms lead to dramatic differences in social welfare. Although Beijing's lottery system has a large advantage in reducing automobile externalities over auction, the advantage is offset by the significant allocative cost from misallocation. The lottery system in Beijing resulted in a social welfare loss of 30 billionYuan (nearly $5 billion) in 2012 alone. A uniform-price auction would have generated nearly 20 billion Yuan to Beijing municipal government, more than covering all its subsidies to the local public transit system. © The Author(s) 2017. Published by Oxford University Press on behalf of The Review of Economic Studies Limited.
This paper studies an auction‐lottery hybrid mechanism that is widely adopted in allocating new vehicle licenses in China. We characterize individuals' entry and bidding strategies in a symmetric Bayesian Nash equilibrium, structurally estimate individuals' value distribution from a dataset of Guangzhou program, and evaluate the performance of the mechanism. Based on the estimated distribution and counterfactual analysis, our study suggests that a hybrid mechanism preserves 83% efficiency and 52% revenue, while improves equity by 25 times comparing to a pure auction. We show that allowing auction losers to participate in the lottery can further enhance the performance.
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Marketplaces are often small parts of large markets, and both markets and marketplaces come in many varieties. Market design seeks to understand what marketplaces must accomplish to enable different kinds of markets. Marketplaces can have varying degrees of success, and there can be marketplace failures. I'll discuss labor markets like the market for new economists, and also markets for new lawyers and doctors that have suffered from the unraveling of appointment dates to well before employment begins. Markets work best if they enjoy social support, but some markets are repugnant in the sense that some people think they should be banned, even though others want to participate in them. Laws banning such markets often contribute to the design of illegal black markets, and this raises new issues for market designers. I'll briefly discuss markets and black markets for narcotics, marijuana, sex, and surrogacy, and the design of markets for kidney transplants, in the face of widespread laws against (and broader repugnance for) compensating organ donors. I conclude with open questions and engineering challenges.
Motivated by efficiency and equity concerns, public resource managers have increasingly utilized hybrid allocation mechanisms that combine features of commonly used price (e.g., auction) and non-price (e.g., lottery) mechanisms. This study serves as an initial investigation of these hybrid mechanisms, exploring theoretically and experimentally how the opportunity to obtain a homogeneous good in a subsequent lottery affects Nash equilibrium bids in discriminative and uniform price auctions. The lottery imposes an opportunity cost to winning the auction, systematically reducing equilibrium auction bids. In contrast to the uniform price auction, equilibrium bids in the uniform price hybrid mechanism vary with bidder risk preferences. Experimental evidence suggests that the presence of the lottery and risk attitudes (elicited through a preceding experiment) impact auction bids in the directions predicted by theory. Finally, we find that theoretically and experimentally, the subsequent lottery does not compromise the efficiency of the auction component of the hybrid mechanisms.
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