Academic journal article Economic Inquiry

Allocation of Goods by Lottery

Academic journal article Economic Inquiry

Allocation of Goods by Lottery

Article excerpt


Many goods such as hunting permits, oil drilling leases, cellular telephone licenses, and rights to fishing berths--as well as some "buds," such as the military draft, jury duty, and who is to be thrown overboard on a sinking life raft--are or have been allocated by lotteries. In neo-classical welfare economics, the random distribution of property rights does not affect allocative efficiency as long as transferability is allowed and the transactions costs are non-prohibitive. Lottery allocations, however, are generally not transferable. Thus lottery allocations are inefficient since the goods are not ultimately allocated to the users who value them the most.

A number of authors, such as Aubert [1959], Fienberg [1971], Eckhoff [1989], and Elster [1989, 36-122], have argued that lotteries are chosen as the allocative instrument because it represents a "fair" or "just" means of allocating the goods. Rawls [1971, 374] and Eckhoff [1989] have noted that where it is impractical to divide the goods equally among those who desire them, a lottery serves to satisfy both the requirement that the process be fair and that the allocation problem be resolved relatively costlessly. Elster [1989, 113], however, notes that lotteries are not the only fair allocation mechanism. For example, he points out that in Jewish ethics the problem of allocating an indivisible good such as life-saving resources is resolved by denying it to everyone. Even economists would probably prefer a lottery to this resolution.

The fairness hypothesis has a rich history. In the Old Testament, lotteries are deemed a fair way of allocating goods such as the inheritance of land [Numbers 33:54]. Lotteries are also used to allocate bads. In perhaps the most famous Biblical example of use of lots, Jonah was chosen by lot to be sacrificed to appease God who had brought a storm that threatened to wreck the ship. The story goes that the lot selected Jonah because he was shirking his duties elsewhere and should not have even been on the vessel [Jonah 1:6].(1) Notice that "fair" here is taken to mean "just." Given this theological foundation, it is not surprising that the lottery has seen frequent use in legal history as well. One of the most interesting cases occurred in Swedish and Finnish trials in the 17th and 18th centuries. In cases where a man was murdered by a mob, lotteries were used to allocate punishment. Since the law required an eye-for-an-eye, no more and no less, Eckhoff says that if "it was impossible to ascertain which of them had dealt the mortal blow," the courts determined that one of the responsible parties be sentenced to death and that the person be selected by lottery [1989, 19]. A similar use of lotteries occurs in military history to deal with cases of mass desertion: in Roman armies every tenth man was executed (decimated) and the remainder pardoned.

In more modern times, the lottery has been used in U. S. law.(2) First, of course, is the use of a lottery to decide who shall sit on a jury. A connection between fairness and lotteries, however, has also appeared in the common law. In an 1842 case, U.S. v. Holmes, which has been discussed by Fienberg [1971], Eckhoff [1989], and Elster [1989], a ship sank in a heavy storm and the lone surviving life raft was in grave danger of sinking. The crew threw overboard fourteen male passengers in an effort to save the rest. When back in port after being rescued, a crewman named Holmes (the only crew member who had not disappeared upon arrival to port) was brought to trial for the deaths of the passengers. The court ruled that the non-essential members of the crew should have been thrown overboard before any passengers, and if that was not sufficient, then passengers should have been selected by lot, which is "the fairest mode," (Elster [1989, 65]). The fact that a human life (presumably a large cost) was at stake ex post did not affect the decision.(3)

The environmental economics literature contains a number of references to the social preferences for and benefits of lottery allocations. …

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