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Barcelona GSE Working Paper No. 537

Title: Pseudomarkets with Priorities in Large Random Assignment Economies
Authors: Antonio Miralles
Date: 05-03-2011
Keywords: Random Assignment; Fairness; Stability; School Choice
JEL Codes: D61, D63, H42
Abstract:
I study large random assignment economies with a continuum of agents and a …finite number of object types. I consider the existence of weak priorities discriminating among agents with respect to their rights concerning the …final assignment. The respect for priorities ex ante (ex-ante stability) usually precludes ex-ante envy-freeness. Therefore I defi…ne a new concept of fairness, called no unjustifi…ed lower chances: priorities with respect to one object type cannot justify different achievable chances regarding another object type. This concept, which applies to the assignment mechanism rather than to the assignment itself, implies ex-ante envy-freeness among agents of the same priority type. I propose a variation of Hylland and Zeckhauser's (1979) pseudomarket that meets ex-ante stability, no unjustifi…ed lower chances and ex-ante efficiency among agents of the same priority type. Assuming enough richness in preferences and priorities, the converse is also true: any random assignment with these properties could be achieved through an equilibrium in a pseudomarket with priorities. If priorities are acyclical (the ordering of agents is the same for each object type), this pseudomarket achieves ex-ante efficient random assignments.
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