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AUCTION–LOTTERY HYBRID MECHANISMS: STRUCTURAL MODEL AND EMPIRICAL ANALYSIS
Author(s) -
Huang Yangguang,
Wen Quan
Publication year - 2019
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12356
Subject(s) - lottery , microeconomics , counterfactual thinking , bidding , equity (law) , econometrics , mechanism (biology) , economics , common value auction , revenue , computer science , philosophy , accounting , epistemology , political science , law
This article studies an auction–lottery hybrid mechanism that is widely adopted in allocating new vehicle licenses in China. We characterize individuals' entry and bidding strategies in a symmetric Bayesian Nash equilibrium, structurally estimate individuals' value distribution from a data set of a Guangzhou program, and evaluate the performance of the mechanism. Based on the estimated distribution and counterfactual analysis, our study suggests that a hybrid mechanism preserves 83% efficiency and 52% of revenue, while it improves equity by 25 times compared to a pure auction. We show that allowing auction losers to participate in the lottery can further enhance the performance.