Assigning Property Rights to Scarce Resources when Individual Wealth Levels are Observable

In this note, we consider how to allocate property rights to scarce resources when agents have budget constraints. Each individual's wealth level is often observable to the state, although the individual subjective valuation for the resource is hardly known to the state. Under this situation, we mainly compare the efficiency of allocations under two assignment mechanisms; (i) the random assignment with resale and (ii) priority assignment to the poorest with resale. We show that the latter is more efficient than the former. If the mass of goods to be allocated is large enough, the latter can achieve social optimum.