March 3, 2026

How to Allocate Money?

Key Points

Allocating money through an ordeal mechanism outperforms a lumpsum transfer when certain value conditions are met.
Agents engaging in wasteful activities can provide insights into their marginal value for money, leading to better allocation strategies.
By analyzing marginal values for money, the study highlights potential inefficiencies in traditional allocation methods.
Implications suggest that creating hurdles can enhance distribution efficiency, although complexity increases for agents.

Abstract

I study a simple equity-efficiency problem: A designer allocates a fixed amount of money to a population of agents differing in privately observed marginal values for money. She can only screen by imposing an “ordeal”—that is, by allocating more money to agents who engage in a socially wasteful activity (such as queuing or filling out forms). Giving a lumpsum transfer is outperformed by an ordeal mechanism when agents with the lowest money-denominated cost of engaging in the wasteful activity have an expected value for money that exceeds the average value by more than a factor of two. (JEL D63, D82, H23, I38)

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Cite This Study

Piotr Dworczak (Wed,) studied this question.

synapsesocial.com/papers/69a75d05c6e9836116a26685 https://doi.org/https://doi.org/10.1257/mic.20230263

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