A pseudo-market approach to allocation with priorities

Authors: Yinghua He, Antonio Miralles, Marek Pycia and Jianye Yan

American Economic Journal: Microeconomics, Vol. 10, No 3, 272-314, August, 2018

We propose a pseudo-market mechanism for no-monetary-transfer allocation of indivisible objects based on priorities such as those in school choice. Agents are given token money, face priority-specific prices, and buy utility-maximizing random assignments. The mechanism is asymptotically incentive compatible, and the resulting assignments are fair and constrained Pareto efficient. Hylland and Zeckhauser’s (1979) position-allocation problem is a special case of our framework, and our results on incentives and fairness are also new in their classical setting.