Fair way of distributing licenses

Reference no: EM131010165

Many cities regulate the number of taxi licenses, and there is a great deal of competition for both new and existing licenses. Suppose that a city has decided to sell 10 new licenses for $25,000 each. A lottery will be held to determine who gets the licenses, and no one may re- quest more than three licenses. Twenty individuals and taxi companies have entered the lottery. Six of the 20 entries are requests for 3 licenses, 9 are requests for 2 licenses, and the rest are requests for a single license. The city will select requests at random, filling as many of the requests as possible. For example, the city might fill requests for 2, 3, 1, and 3 licenses and then select a re- quest for 3. Because there is only one license left, the last request selected would receive a license, but only one.

a. An individual has put in a request for a single license. Use simulation to approximate the probability that the request will be granted. Perform at least 20 simulated lotteries (more is better!).

b. Do you think that this is a fair way of distributing licenses? Can you propose an alternative procedure for distribution?

Reference no: EM131010165

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