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This article studies an auction-lottery hybrid mechanism that is widely adopted in allocating new vehicle licenses in China. We characterize individuals' entry and bidding strategies in a symmetric Bayesian Nash equilibrium, structurally estimate individuals' value distribution from a data set of a Guangzhou program, and evaluate the performance of the mechanism. Based on the estimated distribution and counterfactual analysis, our study suggests that a hybrid mechanism preserves 83% efficiency and 52% of revenue, while it improves equity by 25 times compared to a pure auction. We show that allowing auction losers to participate in the lottery can further enhance the performance. * Manuscript . 2 Xiao et al. (2017) find that the vehicle quota system in Shanghai has reduced negative externality of vehicle consumption for over CNY 11 billion. 355 C (2018) by the

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