Assigning Resources to Budget-Constrained Agents

Suppose that a government wishes to distribute a resource such as public land or radio spectrum. A natural option is to sell it at the market-clearing price, via a standard auction, but other methods have a long history, as the passage above indicates. Land was assigned on a first-come first-served basis during the 1889 Oklahoma Land Rush. In many countries, new housing units may be subject to binding price caps, with the units assigned by lottery.1 Various priority rules are used as well. For example, children are accepted into public schools based on where they live, which school their siblings attend, or the outcome of a lottery. Priority rules also determine which transplant patients get organs, based on factors such as the patient’s age and the severity of the condition. According to the Coase theorem, the exact method of assigning a good does not affect the efficiency of the ultimate allocation since individuals will negotiate until they exhaust all gains