Auction-Lottery Hybrid Mechanisms : Structural Model and Empirical Analysis

This paper studies an auction-lottery hybrid mechanism that is widely adopted in allocating new vehicle licenses in China. We characterize individuals' entry and bidding strategies in a symmetric Bayesian Nash equilibrium, structurally estimate individuals' value distribution from a dataset of Guangzhou program, and evaluate the performance of the mechanism. Based on the estimated distribution and counterfactual analysis, our study suggests that a hybrid mechanism preserves 83% efficiency and 52% revenue, while improves equity by 25 times comparing to a pure auction. We show that allowing auction losers to participate in the lottery can further enhance the performance