Optimality Of Non-Competitive Allocation Rules

We study an allocation problem with asymmetric information, no monetary transfers, and ex-post verifiability. We show that optimal allocation has a number of anti-competitive features: participation might be restricted to a select group of agents; allocation is stochastic, occasionally favoring low-value agents; agents might be required to undertake costly wasteful activities prior to participation. We also show that, in contrast with the classic insight of Bulow and Klemperer (1996) for environments with monetary payments, expanding the market can be counterproductive and the principal should focus on learning details of the environment and designing an optimal mechanism for a small number of agents