Design of Lotteries and Wait-Lists for Affordable Housing Allocation

Nick Arnosti, Peng Shi

Research output: Contribution to journalArticlepeer-review

Abstract

We study a setting in which dynamically arriving items are assigned to waiting agents, who have heterogeneous values for distinct items and heterogeneous outside options. An ideal match would both target items to agents with the worst outside options and match them to items for which they have high value. Our first finding is that two common approaches-using independent lotteries for each item and using a waitlist in which agents lose priority when they reject an offer-lead to identical outcomes in equilibrium. Both approaches encourage agents to accept items that are marginal fits. We show that the quality of the match can be improved by using a common lottery for all items. If participation costs are negligible, a common lottery is equivalent to several other mechanisms, such as limiting participants to a single lottery, using a waitlist in which offers can be rejected without punishment, or using artificial currency. However, when there are many agents with low need, there is an unavoidable trade-off between matching and targeting. In this case, utilitarian welfare may be maximized by focusing on good matching (if the outside option distribution is light tailed) or good targeting (if it is heavy tailed). Using a common lottery achieves near-optimal matching, whereas introducing participation costs achieves near-optimal targeting.

Original languageEnglish (US)
Pages (from-to)2291-2307
Number of pages17
JournalManagement Science
Volume66
Issue number6
DOIs
StatePublished - Jun 2020
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2020 INFORMS

Keywords

  • Economics
  • Game theory
  • Housing allocation
  • Market design
  • Matching

Fingerprint

Dive into the research topics of 'Design of Lotteries and Wait-Lists for Affordable Housing Allocation'. Together they form a unique fingerprint.

Cite this