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on Economic Design |
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Issue of 2017‒06‒25
seven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Marco Pagnozzi (Università di Napoli Federico II and CSEF); Krista J. Saral (Webster University Geneva) |
| Abstract: | We experimentally analyze the role of speculators, who have no use value for the objects on sale, in auctions. The environment is a uniform-price sealed-bid auction for 2 identical objects, followed by a free-form bargaining resale market, with one positive-value bidder, and either one or two speculators who may choose simultaneously whether to enter the auction. We show that the bidder accommodates speculators by reducing demand in the auction and subsequently purchasing in the resale market, which encourages entry by speculators. The presence of multiple speculators induces each speculator to enter less often, but increases competition in the auction and the auction price. Speculators earn positive profits on average, except when multiple speculators enter the auction. |
| Keywords: | speculators, entry, multi-object auctions, resale, economic experiments |
| JEL: | D44 C90 |
| Date: | 2017–06–18 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:475&r=des |
| By: | Olivier Bos (Panthéon-Assas University, France); Francisco Gomez-Martinez (Universidad Carlos III de Madrid, Spain); Sander Onderstal (University of Amsterdam and Tinbergen Institute, The Netherlands); Tom Truyts (Saint-Louis University Brussels and University of Leuven, Belgium) |
| Abstract: | We study the relative performance of the first-price sealed-bid auction and the second-price sealed-bid auction in a laboratory experiment where bidders can signal information through their bidding behavior to an outside observer. We consider two different information settings: the auctioneer reveals either the identity of the winning bidder only, or she also reveals the winner’s payment to an outside observer. We find that the first-price sealed-bid auction in which the winner’s payment is revealed outperforms the other mechanisms in terms of revenue and efficiency. Our findings may have implications for the design of charity auctions, art auctions, and spectrum auctions. |
| Keywords: | Auctions; Signaling; Experiments |
| JEL: | C92 D44 D82 |
| Date: | 2017–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20170053&r=des |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Francisco Castro (Graduate School of Business, Columbia University); Gabriel Weintraub (Graduate School of Business, Stanford University) |
| Abstract: | We study the classic sequential screening problem under ex-post participation constraints. Thus the seller is required to satisfy buyers’ ex-post participation constraints. A leading example is the online display advertising market, in which publishers frequently cannot use up-front fees and instead use transaction-contingent fees. We establish when the optimal selling mechanism is static (buyers are not screened) or dynamic (buyers are screened), and obtain a full characterization of such contracts. We begin by analyzing our model within the leading case of exponential distributions with two types. We provide a necessary and sufficient condition for the optimality of the static contract. If the means of the two types are sufficiently close, then no screening is optimal. If they are sufficiently apart, then a dynamic contract becomes optimal. Importantly, the latter contract randomizes the low type buyer while giving a deterministic allocation to the high type. It also makes the low type worse-off and the high type better-off compared to the contract the seller would offer if he knew the buyer’s type. Our main result establishes a necessary and sufficient condition under which the static contract is optimal for general distributions. We show that when this condition fails, a dynamic contract that randomizes the low type buyer is optimal. |
| Keywords: | Sequential screening, Ex-post participation constraints, Static contract, Dynamic contract |
| JEL: | C72 D82 D83 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2078r&r=des |
| By: | Piero Gottardi (European University Institute - Department of Economics); Jean-Marc Tallon (PSE - Paris School of Economics); Paolo Ghirardato (Collegio Carlo Alberto - Via Real Collegio 30) |
| Abstract: | This paper studies the costs and benefits of delegating decisions to superiorly informed agents, that is of adopting flexible contracts, relative to the use of rigid, non discretionary contracts. The main focus of the paper lies in the analysis of the costs of delegation, primarily agency costs, versus their benefits, primarily the flexibility of the action choice in two different environments, one with risk and one with ambiguity. We first determine and characterize the properties of the optimal flexible contract. We then show that the higher the agent's degree of risk aversion, the higher is the agency costs of delegation and the less profitable a flexible contract relative to a rigid one. When the parties have imprecise probabilistic beliefs, the agent's degree of imprecision aversion introduces another agency cost, which again reduces the relative profitability of flexible contracts. JEL Classification: D86, D82, D81. |
| Keywords: | Multiple Priors,Imprecision Aversion,Flexibility,Delegation,Agency Costs |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-01238046&r=des |
| By: | Matteo Bobba; Verónica Frisancho |
| Abstract: | This paper designs and implements a field experiment that provides students from less advantaged backgrounds with individualized feedback on academic performance during the transition from middle to high school. The intervention reduces the gap between expected and actual performance, as well as shrinks the variance of individual ability distributions. Guided by a simple Bayesian model, the paper empirically documents the interplay between variance reductions and mean changes of beliefs in shaping curricular choices. The shift in revealed preferences on high school tracks enabled by the intervention affects schooling trajectories, with better-performing students being assigned into more academically oriented options. |
| Keywords: | Vocational Education and Training, School Attendance, High School, School Enrollment, Higher Education, Human Capital Investment, Labor markets, Academic achievement, School Choice, Academic Performance, information, Bayesian updating, biased beliefs, school choice |
| JEL: | J24 I24 I21 D83 |
| Date: | 2016–11 |
| URL: | http://d.repec.org/n?u=RePEc:idb:brikps:94078&r=des |
| By: | Gomis-Porqueras, Pedro (Deakin University); Waller, Christopher J. (Federal Reserve Bank of St. Louis) |
| Abstract: | We consider an overlapping generation framework with search and private information to study optimal taxation. Agents sequentially trade in markets that are characterized by different frictions and trading protocols. In frictional decentralized markets, agents receive shocks that determine if they are going to be consumers or producers. Shocks are private information. Mechanism design is used to solve for the constrained optimal allocation. We then study whether a government can replicate the constrained optimal allocation with an array of policy instruments including fiat money. We show that if the government has a full set of non-linear taxes, then lump-sum taxes and inflation are irrelevant for the allocation. However, if the government is constrained to use linear taxes, then using the inflation tax is optimal even if lump-sum taxes are available. |
| Keywords: | Inflation; Monetary Policy; Fiscal Policy |
| JEL: | E52 E62 H21 |
| Date: | 2017–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2017-014&r=des |
| By: | Aronsson, Thomas (Department of Economics, Umeå University); Sjögren, Tomas (Department of Economics, Umeå University) |
| Abstract: | This paper surveys research on optimal redistributive taxation in economies with environmental externalities. A major question is whether externality correction only motivates an adjustment of the tax policy rule for the externality-generating activity, or whether the marginal value of the externality directly enters the policy rules for other tax instruments as well. In a static benchmark model with an atmospheric consumption externality, where the government uses a mix of a nonlinear income tax and linear commodity taxes, we show that Sandmo’s (1975) additivity property applies. This means that externality correction leads to an additional term (measuring the marginal value of the externality) in the commodity tax formula for the externality generating good, while the policy rules for commodity taxation of clean goods and marginal income taxation take the same form as in the absence of any externality. We also extend this benchmark model to capture a number of scenarios (such as non-atmospheric externalities, border trade in the externality generating good, and competition between governments in a multi-country framework), where the additivity property no longer applies. We end by examining an intertemporal model of optimal taxation with a stock-externality, allowing us to integrate the study of optimal redistributive taxation with literature on environmental economics and policy based on dynamic models. |
| Keywords: | Environmental externalities; optimal taxation; redistribution; income taxation; commodity taxation |
| JEL: | D60 D62 H21 H23 Q51 |
| Date: | 2017–06–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:umnees:0950&r=des |