MICRO/THEORY: Pareto-improving Priority Pricing; Dr Zi Yang Kang (University of Toronto)

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.