Preferences for market-based allocation mechanisms
Market
Allocation Mechanisms
Experiment
Abstract
We consider the problem of allocating a scarce resource to individuals. A centralized market procedure eliciting individual valuations and yielding a unique price provides in theory the most efficient and equitable way of doing so. As compared to an individualized procedure where the price can possibly differ among players, we show experimentally how such a market indeed protects subjects who make mistakes. We however find little support for a centralized market procedure. One reason is that the benefits from the market are concentrated on a minority of subjects, and many vote against their own monetary interest. The other is that subjects who can expect similar payoffs in both procedures show a strong preference against the market.