nep-des New Economics Papers
on Economic Design
Issue of 2017‒07‒02
nine papers chosen by
Alex Teytelboym
University of Oxford

  1. Aggregation of Bayesian preferences: Unanimity vs Monotonicity By Federica Ceron; Vassili Vergopoulos
  2. Mechanisms with Referrals: VCG Mechanisms and Multilevel Mechanisms By Joosung Lee
  3. Information Design In Coalition Formation Games By Sareh Vosooghi
  4. The Myopic Stable Set for Social Environments By Thomas Demuynck; Jean-Jacques Herings; Riccardo D. Saulle; Christian Seel
  5. Dynamical selection of Nash equilibria using Experience Weighted Attraction Learning: emergence of heterogeneous mixed equilibria By Robin Nicole; Peter Sollich
  6. Interpreting Arrow’s Impossibility Theorem By Dan Usher
  7. Should Jurors Deliberate? By Guha, Brishti
  8. Strategic vote trading under complete information By Dimitrios Xefteris; Nicholas Ziros
  9. Good Politicians' Distorted Incentives By Margherita Negri

  1. By: Federica Ceron (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Vassili Vergopoulos (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: This article reconsiders the issue of Bayesian aggregation by pointing at a conflict that may arise between two logically independent dominance criteria, Pareto dominance and statewise dominance, that are commonly imposed on social preferences. We propose a weaker dominance axiom that restricts statewise dominance to Pareto dominant alternatives and Pareto dominance to statewise dominant alternatives. The associated aggregation rule is a convex combination of two components., the first being a weighted sum of the individuals' subjective expected utility (SEU) functional, the second being a social SEU functional, with associated social utility function and social belief. Such representation establishes the existence of a trade off between adherence to the Pareto principle and compliance with statewise dominance. We then investigate what are the consequences of adding to our assumptions either of the two dominance criteria in their full force and obtain that each of them is equivalent to discarding the other, unless there is essentially a common prior probability.
    Abstract: Cet article étudie l'agrégation des préférences Bayesiennes en examinant un conflit potentiel entre deux critères de dominance communément imposés sur les préférences sociales, la dominance de Pareto et la dominance stochastique. Il propose une notion de dominance plus faible qui contraint la validité de la dominance stochastique à des alternatives dominantes au sens de Pareto, ou, de manière équivalente, celle du principe de Pareto à des alternatives dominantes au sens stochastique. La règle d'agrégation qui en résulte est une combinaison convexe de deux composantes, une somme pondérée des fonctionnelles individuelles et l'espérance d'utilité sociale. Cette règle établit l'existence d'un arbitrage entre adhérence au principe de Pareto et conformité à la dominance stochastique.
    Keywords: Pareto dominance,Monotonicity,Preference aggregation,Social choice,Subjective expected utility,Dominance de Pareto,monotonicité,agrégation des préférences,choix social,utilité espérée subjective
    Date: 2017–05
  2. By: Joosung Lee (Business School, University of Edinburgh)
    Abstract: We study mechanisms for environments in which only some of the agents are directly connected to a mechanism designer and the other agents can participate in a mechanism only through the connected agents' referrals. In such environments, the mechanism designer and agents may have different interest in varying participants so that agents strategically manipulate their preference as well as their network connection to avoid competition or congestion; while the mechanism designer wants to elicit the agents' private information about both preferences and network connections. As a benchmark for an efficient mechanism, we re-define a VCG mechanism. It is incentive compatible and individually rational, but it generically runs a deficit as it requires too much compensation for referrals. Alternatively as a budget-surplus mechanism, we introduce a multilevel mechanism, in which each agent is compensated by the agents who would not be able to participate without her referrals. Under a multilevel mechanism, we show that fully referring one's acquaintances is a dominant strategy and agents have no incentive to under-report their preference if the social welfare is submodular.
    Keywords: Mechanism Design, Referral Program, Reward Scheme, VCG Mechanism, Multilevel Mechanism, Incentive Compatibility, Budget Feasibility
    JEL: D82 D71 C72
    Date: 2017–06
  3. By: Sareh Vosooghi (University of Oxford)
    Abstract: I examine a setting, where an information sender conducts research into a payoff-relevant state variable, and releases information to agents, who consider joining a coalition. The agents' actions can cause harm by contributing to a public bad. The sender, who has commitment power, by designing an information mechanism (a set of signals and a probability distribution over them), maximises his payoff, which depends on the action taken by the agents, and the state variable. I show that the coalition size, as a function of beliefs of agents, is an endogenous variable, induced by the information sender. The optimal information mechanism from the general set of public information mechanisms, in coalition formation games is derived. I also apply the results to International Environmental Agreements (IEAs), where a central authority, as an information sender, attempts to reduce the global level of greenhouse gases (GHG) by communication of information on social cost of GHG.
    Keywords: Coalition Formation, Learning, Information Persuasion, International Environmental Agreements
    JEL: D83 D70 C72 Q54
    Date: 2017–06
  4. By: Thomas Demuynck (Ecares, Université Libre de Bruxelles); Jean-Jacques Herings (Department of Economics, Maastricht University); Riccardo D. Saulle (Department of Economics, Maastricht University); Christian Seel (Department of Economics, Maastricht University)
    Abstract: We introduce a new solution concept for models of coalition formation, called the myopic stable set. The myopic stable set is defined for a very general class of social environments and allows for an infinite state space. We show that the myopic stable set exists and is non-empty. Under minor continuity conditions, we also demonstrate uniqueness. Furthermore, the myopic stable set is a superset of the core and of the set of pure strategy Nash equilibria in noncooperative games. Additionally, the myopic stable set generalizes and unifies various results from more specific environments. In particular, the myopic stable set coincides with the coalition structure core in coalition function form games if the coalition structure core is non-empty; with the set of stable matchings in the standard one-to-one matching model; with the set of pairwise stable networks and closed cycles in models of network formation; and with the set of pure strategy Nash equilibria in finite supermodular games, finite potential games, and aggregative games. We illustrate the versatility of our concept by characterizing the myopic stable set in a model of Bertrand competition with asymmetric costs, for which the literature so far has not been able to fully characterize the set of all (mixed) Nash equilibria.
    Keywords: Social Environments, Group Formation, Stability, Nash Equilibrium
    JEL: C70 C71
    Date: 2017–06
  5. By: Robin Nicole; Peter Sollich
    Abstract: We study the distribution of strategies in a large game that models how agents choose among different double auction markets. We classify the possible mean field Nash equilibria, which include potentially segregated states where an agent population can split into subpopulations adopting different strategies. As the game is aggregative, the actual equilibrium strategy distributions remain undetermined, however. We therefore compare with the results of Experience-Weighted Attraction (EWA) learning, which at long times leads to Nash equilibria in the appropriate limits of large intensity of choice, low noise (long agent memory) and perfect imputation of missing scores (fictitious play). The learning dynamics breaks the indeterminacy of the Nash equilibria. Non-trivially, depending on how the relevant limits are taken, more than one type of equilibrium can be selected. These include the standard homogeneous mixed and heterogeneous pure states, but also \emph{heterogeneous mixed} states where different agents play different strategies that are not all pure. The analysis of the EWA learning involves Fokker-Planck modeling combined with large deviation methods. The theoretical results are confirmed by multi-agent simulations.
    Date: 2017–06
  6. By: Dan Usher (Queen's University)
    Abstract: Arrow’s Impossibility Theorem is commonly understood to invoke a dictatorship that is somehow lurking within our voting arrangements. A well-recognized statement of the theorem is that “any constitution that respects transitivity, independence of irrelevant alternatives and unanimity is a dictatorship†. The theorem is really not about dictatorship at all. It is more appropriately interpreted as about the spoiler problem, about the possibility that the presence of a candidate who cannot win the election himself may, nevertheless, violate the “independence of irrelevant alternatives†by switching the outcome of the election between two other candidates. The theorem becomes that no electoral system is guaranteed to avoid the spoiled problem altogether, regardless of the options and regardless of voter preferences.
    Keywords: Impossibility Theorem, Spoilers, Dictatorship
    JEL: D60 D72
    Date: 2017–06
  7. By: Guha, Brishti
    Abstract: Does the accuracy of verdicts improve or worsen if individual jurors on a panel are barred from deliberating prior to casting their votes? I study this question in a model where jurors can choose to exert costly effort to improve the accuracy of their individual decisions. I find that, provided the cost of effort is not too large, there is a threshold jury size above which it is better to allow jurors to deliberate. For panels smaller than this threshold, it is more effective to instruct jurors to vote on the basis of their private information, without deliberations, and to use a simple majority rule to determine the collective decision (regardless of the voting rule used with deliberations). The smaller the cost of paying attention, the larger the threshold above which the switch to allowing deliberations becomes optimal. However, if the unanimity rule had to be maintained under the no-deliberations system, it would be better to allow deliberation. The results apply to binary decision making in any committee where the committee members incur some effort in reviewing the evidence. Examples are tenure and promotion committees and some board of director meetings on issues such as whether to dismiss a CEO.
    Keywords: Jury deliberations, free riding, costly attention, secret voting, committees.
    JEL: D7 D71 D82 K41
    Date: 2017–06–01
  8. By: Dimitrios Xefteris; Nicholas Ziros
    Abstract: We study two-party elections considering that: a) prior to the voting stage voters are free to trade votes for money according to the rules of the Shapley-Shubik strategic market games; and b) voters' preferences -both ordinal rankings and cardinal intensities- are public information. While under plurality rule no trade occurs, under a power-sharing system (voters' utilities are proportionally increasing in the vote share of their favorite party) full trade is always an equilibrium (two voters -the strongest supporter of each party- buy the votes of all others). Notably, this equilibrium implements proportional justice with respect to the two buyers: the ratio of the parties' vote shares is equal to the ratio of the preference intensities of the two most opposing voters.
    Keywords: Vote trading; Complete information; Strategic market games; Power sharing; Proportional justice.
    JEL: C72 D72 P16
    Date: 2017–06
  9. By: Margherita Negri (School of Economics and Finance, University of St Andrews)
    Abstract: I construct a political agency model that provides a new explanation for sub-optimal policy making decisions by incumbents. I show that electoral incentives can induce politicians to address less relevant issues, disregarding more important ones. Issue importance is defined in terms of the utility voters would receive if the issue was solved. Contrary to existing literature, sub-optimal policy making occurs even when voters are perfectly informed about issues’ characteristics and politicians are policy oriented. I provide an explanation that relies on the negative correlation between issue importance and probability of solving it: for a given effort exerted by incumbents, less relevant issues guarantee higher probability of success. In equilibrium, voters cannot commit to re-elect the incumbent if and only if the most important issue was solved. This is because solving the easy issue also constitutes a positive signal about incumbents’ type. Whenever re-election is sufficiently valuable, then, politicians will choose to address less relevant and easier issues.
    Keywords: political agency, elections, incumbent behavior, politicians’ incentives
    JEL: D02 D72 D78
    Date: 2017–05–06

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