ALLOCATION OF GOODS BY LOTTERY

Abstract

Many authors have argued that lotteries are used to allocate resources because of the fairness of the mechanism. However, a number of historical examples suggest otherwise. Participation fees are almost always charged and they are often discriminatory. In addition, goods (or bads) allocated by lotteries are usually not transferable. Both lottery participation fees and restrictions on transferability reduce rent‐seeking from speculators. Each feature increases the rents to the primary user groups relative to the rents attainable from alternative mechanisms such as auctions, queues, or merit allocations.

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