Market versus Non-Market Assignment of Ownership

Yeon-Koo Che, Columbia University, Department of Economics
Ian Gale, Georgetown University, Department of Economics

Abstract

We study the initial assignment of ownership of a good. When the good is sold at the market-clearing price, wealthy individuals may acquire it instead of poor individuals who would value it more highly, all else equal. Non-market assignment schemes such as random rationing may assign the good more efficiently than the competitive market would --- if the recipients of the good are allowed to resell. Schemes that favor the poor are even more desirable. The ability to resell is critical to the results, but resale induces speculators to participate, so regulation of resale may be beneficial.