Value Loss in Allocation Systems with Provider Guarantees

Many systems allocate tasks centrally to providers whose welfare depends on what they receive, creating a tension between provider guarantees and total value. We derive tight bounds on the value lost when such guarantees are imposed and show that the loss is limited. With many providers, fairness is the main driver; with few, differences in providers’ effectiveness matter more. When providers are identical, the loss never exceeds 50%, and experiments with real and synthetic data find much smaller losses in several practical settings.

Management Science, vol. 67, no. 6, pp. 3757–3784