The Welfare Cost of Beijing’s Lottery Policy—Evidence from a Contingent Valuation Survey

Motivated by traffic congestion and air pollution, Beijing is one of several major cities to restrict vehicle ownership. Beijing residents who want to obtain a car must first win a lottery. We examine the welfare cost of preventing people from owning cars using a new survey of Beijing lottery participants that we designed and conducted explicitly for this purpose. We find that restricting vehicle ownership reduced private welfare by 26 billion yuan. Back-of-the-envelope calculations suggest that the benefits of lower congestion and pollution roughly equal the costs. Our WTP estimates indicate a net welfare gain of about 20 billion yuan from replacing Beijing’s lottery with an auction, which is smaller than the gains estimated previously in the literature.

• There is a misallocation of cars among lottery winners and losers. Some individuals with low willingness to pay are able to obtain cars, and others with high willingness to pay are not.
• As part of the study, the authors found that replacing the lottery with an auction (similar to the system set up in the Chinese city of Shanghai) would create a net welfare gain of roughly 20 billion yuan ($3.1 billion USD).
• Lottery winners have a much higher willingness to pay than lottery losers. This implies that entrants who have experienced car ownership have a much higher value for cars.

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