Lottery or waiting-line auction?

Abstract

This paper studies the efficiencies of the two most widely used non-price allocation mechanisms: lotteries and waiting-line auctions. As our analysis suggests, in addition to the fairness of the mechanism, the use of lotteries in lieu of waiting-line auctions can be also justified from an efficiency point of view. In particular, we show that the less dispersed consumers' time valuations are, the more efficient is a lottery relative to a waiting-line auction. In addition, we identify four conditions under which a lottery dominates a waiting-line auction in expected social surplus preserving. Furthermore, the numerical simulations we conduct indicate that over a predominantly wide range of circumstances, a lottery is more socially efficient than a waiting-line auction as an allocative mechanism in the absence of a conventional price system. © 2002 Elsevier Science B.V. All rights reserved.