Priorities vs. Quotas

Abstract

How should authorities concerned with match quality, fairness, and diversity, but uncertain over the distribution of agents' characteristics, allocate a resource? We show that, when preferences over these dimensions are separable, a new monotone subsidy schedule (MSS) mechanism requires no knowledge of the state and is ex post optimal. We rationalize the common priority and quota mechanisms as limits of MSS when risk aversion over diversity is low and high, respectively. Echoing lessons from price vs. quantity regulation (Weitzman, 1974), priorities positively select agents over states, while quotas guarantee a level of diversity, but MSS achieve both.