Abstract:

Many markets enforce bans on monetary transfers driven by concerns that wealthier people may have better access to resources. This study discusses the appropriateness of banning transfers as a solution to address such inequality concerns. We examine an assignment problem involving agents with heterogeneous wealth endowments and preferences with positive income effects. To address the inequality concerns, we introduce discrimination-freeness as a constraint. Discrimination-freeness requires that the allocation of objects is independent of individuals’ wealth endowments. We show that for significant large wealth inequalities, money is needed for efficiency. However, a market designer who must not use monetary transfers faces the same restrictions for the allocation of resources as a designer who is bound by discrimination-freeness. For small wealth inequalities, the results are different. Depending on the structure of the preference space, efficiency either can either be reached without using transfers or the market designer can use money to trade off cardinalities without violating discrimination-freeness.