Prevalence of Auction Theory for Allocating Resources in Different Markets Will Lead to Higher Gini Coefficient

Resource allocation is a key challenge in any market and economy. Fair and appropriate allocation of resources will ensure the correct amount of needed resources is allocated to the economic sector for production of goods and services for both the domestic and export market. The question is how do we do that? The key issue revolves around two competing concepts: (i) how to ensure fairness, (ii) how to obtain maximum economic efficiency in resource allocation? Can the two concepts be reconciled? In most circumstances, both concepts are mutually competing, and cannot be reconciled. What societies and economies can do is to obtain a trade-off between the two concepts. Take a hypothetical example that a society prefers to use auction theory to allocate resources. In this case, resources will go to the highest bidder who is typically of greater wealth status. The allocated resources will go on to help the bidder to produce more goods which will generate more wealth. If this is replicated across the economy, there will be greater income inequality or higher Gini coefficient in society that frequently uses auction theory to allocate resources such as student slots at private schools. Hence, while auction theory is regarded as an economically efficient and expedient method for allocating resources, frequent and widespread use of the auction theory will lead to aggregation of wealth in the upper class, thereby, creating a society with a higher income inequality or higher Gini coefficient