Distribution through Repeated Market with Buying Rights

TL;DR

This paper analyzes a repeated hybrid market with buying rights, demonstrating that such rights significantly improve fairness by reducing frustration and ensuring more equitable resource distribution over time.

Contribution

It introduces a novel analytical framework for a market with buying rights, showing how these rights enhance fairness and are coalition-proof, extending previous empirical research.

Findings

Buying rights reduce frustration by at least half compared to free markets.

The equilibrium in the market is a natural generalization of free market equilibrium.

Empirical results support the theoretical advantages of using buying rights.

Abstract

Resource distribution is a fundamental problem in economic and policy design, particularly when demand and supply are not naturally aligned. Without regulation, wealthier individuals may monopolize this resource, leaving the needs of others unsatisfied. While centralized distribution can ensure fairer division, it can struggle to manage logistics efficiently, and adapt to changing conditions, often leading to shortages, surpluses, and bureaucratic inefficiencies. Building on previous research on market-based redistribution, we examine a repeated hybrid market that incorporates buying rights. These rights, distributed iteratively by a central authority (for instance, as digital tokens), are intended to enhance fairness in the system - a unit of right is required to acquire a unit of the resource, but the rights themselves can also be traded alongside the resource in the market. We analyze how this regulatory mechanism influences the distribution of the scarce resource in the hybrid market over time. Unlike past works that relied on empirical methods, we explore the exact analytical properties of a system in which traders optimize over multiple rounds. We identify its market equilibrium, which is a natural generalization of the free market equilibrium, and show that it is coalition-proof. To assess the fairness in the system, we use the concept of frustration, which measures the gap between the resources a buyer is entitled to through their buying rights and what they actually obtain through trading. Our main theoretical result shows that using buying rights reduces the frustration by at least half compared to the free market. Empirical evaluations further support our findings, suggesting the system performs well even beyond the theoretically studied assumptions.