Feeding America distributes food to food banks across the United States. In 2005, it transitioned from a centralized allocation process to one where local affiliates would bid for food items through an online auction mechanism. To do so, it constructed a specialized currency called “shares”. The change, its necessary idiosyncrasies, and outcomes are described here. We both show that the new system exhibits desirable theoretical properties, and document considerable welfare implications. The choices of the food banks vary enormously from the allocations they received under the old system, and much of this gain is from sorting of food banks along the quality-quantity dimension. Furthermore, supply of food rose by roughly 100 million pounds around the time of its introduction. A structural exercise estimates that the value of reallocated demand effectively meant that each pound of food allocated through this system increased efficiency by almost another additional pound.

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Canice Prendergast is the author of "The Limits of Bureaucratic Efficiency" published in the Journal of Political Economy in 2003 and "The Tenuous Trade-Off Between Risk and Incentives" that appeared in the Journal of Political Economy in 2002. Prendergast is widely published, with work appearing in the Economic Journal, the Journal of Labor Economics, the American Economic Review, the Journal of the Japanese and International Economics, and the European Economic Review. Articles on his recent research have appeared in Fortune Magazine, the Financial Times, the Economist, and Der Spiegel.