Economic Theory Seminar Series - Zi Yang Kang (University of Toronto)

Title: Pareto-improving Priority Pricing (with Piotr Dworczak)

Abstract: We study the design of priority pricing systems with heterogeneous agents and costly waiting.  Contrary to the equity–efficiency tradeoff emphasized in public debates, we show that it is possible to Pareto-improve on an unpriced status quo.  Such an improvement requires at least three priority tiers, combining faster service for a fee, slower service with compensation, and an intermediate pooled tier; however, two priority tiers can never achieve this.  Our results provide a framework for overcoming equity–efficiency tensions in applications such as internet traffic management, congestion pricing, and public service waitlists.