Allocating scarce resources in the presence of private information and heterogeneous favoritism

Fan，Xiaoshuai1; Chen，Ying Ju2; Tang，Christopher S.3

2023-07-01

10.1111/poms.13957

Production and Operations Management   Impact Factor & Quartile

1059-1478

1937-5956

Motivated by the challenge of allocating scarce resources from the federal government to different states during the COVID-19 pandemic, this paper studies optimal schemes for allocating scarce resources to agents with private demand information under different favoritism structures. Through an investigation of a mechanism design model that aims to induce agents to report their demands truthfully, we find the following results. First, when the principal purely cares about social welfare and when the principal has sufficient resources to satisfy all agents' demands, we find that the optimal allocation scheme is efficient in the sense that it is identical to the optimal scheme for the “benchmark” case when favoritism differentials and information asymmetry are both absent. Second, when rationing is needed due to resource scarcity, we show that heterogeneity in “event-independent” favoritism across agents will cause the principal to allocate more resources to agents with larger favoritism and less resources to others, resulting in inefficient allocations. Third, when agents possess heterogeneous “event-specific” favoritism due to the existence of outside options, the resulting allocation may boost all agents' expected utilities, including those agents who do not have any outside option. Finally, we show that the “allocation distortion” caused by both information asymmetry and heterogeneous favoritism can be reduced when “positive externality” is present (i.e., allocating resources to one agent can benefit other agents).

allocation scheme favoritism information asymmetry mechanism design scarce resource

SCI

English

First ; Corresponding

National Natural Science Foundation of China[NSFC 72101105];

Engineering ; Operations Research & Management Science

Engineering, Manufacturing ; Operations Research & Management Science

WOS:000937743700001

WILEY

ENGINEERING

2-s2.0-85148529123

Scopus

1.College of Business,Southern University of Science and Technology,Shenzhen,Guangdong,China
2.School of Business and Management,The Hong Kong University of Science and Technology,Kowloon,Hong Kong
3.UCLA Anderson School,Los Angeles,United States

Fan，Xiaoshuai,Chen，Ying Ju,Tang，Christopher S.. Allocating scarce resources in the presence of private information and heterogeneous favoritism[J]. Production and Operations Management,2023,32(7):2068-2086.

Fan，Xiaoshuai,Chen，Ying Ju,&Tang，Christopher S..(2023).Allocating scarce resources in the presence of private information and heterogeneous favoritism.Production and Operations Management,32(7),2068-2086.

Fan，Xiaoshuai,et al."Allocating scarce resources in the presence of private information and heterogeneous favoritism".Production and Operations Management 32.7(2023):2068-2086.