We examine non-price allocation mechanisms when the incentive and information constraints
faced by a democratic government may render the ideal (i.e., “first-best”) outcomes infeasible.
Our model identifies a potential tradeoff between the misallocation of goods and the
misalignment of incentives. This means that restrictions on the transferability of property
rights may increase the value of those rights by reducing the misalignment of incentives over
collective decisions. In this light, the holders of some types of property rights may collectively
favor restrictions on transferability, even though—individually—they would stand to gain from
the ability to sell their rights. We apply the model to the allocation of rights to hunt wild game
(often done by lotteries) and the rights to build and occupy housing under “affordable housing”
policies.
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