Pair‐efficient reallocation of indivisible objects

Abstract

We revisit the classical object reallocation problem under strict preferences. When attention is constrained to the set of Pareto‐efficient rules, it is known that top trading cycles (TTC) is the only rule that is strategy‐proof and individually rational. We relax this constraint and consider pair efficiency. A rule is pair‐efficient if it never induces an allocation at which a pair of agents gain from trading their assigned objects. Remarkably, even in the larger set of pair‐efficient rules, we find that TTC is still the only rule that is strategy‐proof and individually rational. Our characterization result gives strong support to the use of TTC in object reallocation problems.