Using lotteries instead of auctioning is both inefficient and inequality-creating

Abstract

Using lotteries instead of auctioning is both inefficient and inequality-creating Yew-Kwang Ng, Emeritus Professor in the Department of Economics at Monash University, compares the use of the lottery and auctioning to allocate scarce goods. In a recent eBook for Open Access Government, I discuss the anti-market sentiment, including why it is common, based on incorrect reasonings, and how recognising this mistake may make us more accepting of the beneficial market expansion. Here, I discuss a specific manifestation of this anti- market sentiment: Using the lottery to allocate scarce goods (including resources and services) instead of using the market (such as auctioning). An example is the allocation of permits for car ownership. In Singapore, a Certificate of Entitlement (COE) is required to buy a car. Singapore allocates these COEs by the most efficient Vickrey second-price auction. (1)