Allocating vehicle registration permits

Abstract

We compare social welfare, consumer surplus and profits in two different institutional settings in which an item whose quantity is fixed and controlled (vehicle registration permit) is allocated to the buyers of a complementary good (car). In the first setting, which resembles the way in which vehicle registration permits are allocated in Singapore, the central planner runs a uniform price auction for permits in which the consumers who bid the highest receive the permits and pay the highest losing bid. Then each winning consumer purchases a car from a seller. In the alternative setting, the central planner first allocates the permits to sellers and then sellers offer to consumers bundles, each consisting of a car and a permit. For two different models of product differentiation, we find that social welfare is greater when permits are auctioned to consumers, but consumers and sellers generally prefer the alternative setting.