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on Economic Design |
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Issue of 2017‒07‒09
seven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Elchanan Ben-Porath (Department of Economics and Center for Rationality, Hebrew University); Eddie Dekel (Economics Department, Northwestern University, and School of Economics, Tel Aviv University); Barton L. Lipman (Department of Economics, Boston University) |
| Abstract: | We show that in a class of I-agent mechanism design problems with evidence, commitment is unnecessary, randomization has no value, and robust incentive compatibility has no cost. In particular, for each agent i, we construct a simple disclosure game between the principal and agent i where the equilibrium strategies of the agents in these disclosure games give their equilibrium strategies in the game corresponding to the mechanism but where the principal is not committed to his response. In this equilibrium, the principal obtains the same payo as in the optimal mechanism with commitment. As an application, we show that certain costly veri cation models can be characterized using equilibrium analysis of an associated model of evidence. |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:bos:wpaper:wp2017-001&r=des |
| By: | Vladimir Asriyan; William Fuchs; Brett Green |
| Abstract: | How effectively does a decentralized marketplace aggregate information that is dispersed throughout the economy? We study this question in a dynamic setting, in which sellers have private information that is correlated with an unobservable aggregate state. We first characterize equilibria with an arbitrary finite number of informed traders. A common feature is that each seller’s trading behavior provides an informative and conditionally independent signal about the aggregate state. We then ask whether the state is revealed as the number of informed traders goes to infinity. Perhaps surprisingly, the answer is no. We provide generic conditions under which the amount of information revealed is necessarily bounded and does not reveal the aggregate state. When these conditions are violated, there may be coexistence of equilibria that lead to aggregation with those that do not. We discuss the implications for policies meant to enhance information dissemination in markets. Reporting lags combined with segmented trading platforms can be an effective way to ensure information aggregation without sacrificing welfare. In general, a partially revealing information policy can increase trading surplus. |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:979&r=des |
| By: | Joseph E. Stiglitz; Jungyoll Yun; Andrew Kosenko |
| Abstract: | This paper investigates the existence and nature of equilibrium in a competitive insurance market under adverse selection with endogenously determined information structures. Rothschild-Stiglitz (RS) characterized the self-selection equilibrium under the assumption of exclusivity, enforcement of which required full information about contracts purchased. By contrast, the Akerlof price equilibrium described a situation where the insurance firm has no information about sales to a particular individual. We show that with more plausible information assumptions - no insurance firm has full information but at least knows how much he has sold to any particular individual - neither the RS quantity constrained equilibrium nor the Akerlof price equilibrium are sustainable. But when the information structure itself is endogenous - firms and consumers decide what information about insurance purchases to reveal to whom - there always exists a Nash equilibrium. Strategies for firms consist of insurance contracts to offer and information-revelation strategies; for customers - buying as well as information revelation strategies. The equilibrium set of insurance contracts is unique: the low risk individual obtains insurance corresponding to the pooling contract most preferred by him; the high risk individual, that plus (undisclosed) supplemental insurance at his own actuarial odds resulting in his being fully insured. Equilibrium information revelation strategies of firms entail some but not complete information sharing. However, in equilibrium all individuals are induced to tell the truth. The paper shows how the analysis extends to cases where there are more than two groups of individuals and where firms can offer multiple insurance contracts. |
| JEL: | D82 D86 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23556&r=des |
| By: | Salvador Barberà; Anke Gerber |
| Abstract: | We study collective decision-making procedures involving the formation of an agenda of issues and the subsequent vote on the position for each issue on the agenda. Issues that are not on the agenda remain unsettled. We use a protocol-free equilibrium concept introduced by Dutta et al. (2004) and show that in equilibrium, and under general conditions, any subset of issues may be excluded from the agenda in equilibrium whenever the voting rule belongs to one of two prominent families. What is voted upon and what is not depends on the voters preferences in a subtle manner, suggesting a high degree of instability. We also discuss further conditions under which this “anything goes” result may be qualified. In particular, we study those cases where all issues will be put in the agenda. |
| Keywords: | agenda formation, issues, voting, anything goes, equilibrium continuation agendas, voting by quota, amendment procedures, manipulation |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:973&r=des |
| By: | Kasper, Laura (saarland university); Peters, Hans (QE / Mathematical economics and game the); Vermeulen, Dries (QE / Operations research) |
| Abstract: | We consider voting correspondences that are, besides Condorcet Consistent, immune against the two strong no show paradoxes. That is, it cannot happen that if an additional voter ranks a winning alternative on top then that alternative becomes loosing, and that if an additional voter ranks a loosing alternative at bottom then that alternative becomes winning. This immunity is called the Top Property in the first case and the Bottom Property in the second case. We establish the voting correspondence satisfying Condorcet Consistency and the Top Property, which is maximal in the following strong sense: it is the union of all smaller voting correspondences with these two properties. The result remains true if we add the Bottom Property but not if we replace the Top Property by the Bottom Property. This voting correspondence contains the Minimax Rule but it is strictly larger. In particular, voting functions (single-valued voting correspondences) that are Condorcet Consistent and immune against the two paradoxes must select from this maximal correspondence, and we demonstrate several ways in which this can or cannot be done. |
| Keywords: | Condorcet Consistency, strong no show paradoxes, Minimax Rule |
| JEL: | D71 D72 |
| Date: | 2017–06–25 |
| URL: | http://d.repec.org/n?u=RePEc:unm:umagsb:2017017&r=des |
| By: | Lo Prete, Anna; Revelli, Federico (University of Turin) |
| Abstract: | We build a model of voluntary and costly expressive voting, where the relative weight of ideology and valence issues over voting costs determines how people vote and if they actually turn out to vote. In line with the conventional rational calculus approach, the model predicts that the cost of voting depresses voter turnout. Against the conventional wisdom, though, high voting cost/low turnout elections tend to have a larger share of voters for whom the common value signal on candidates’ valence matches their private value views, thus raising the chances that high valence candidates are elected. |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:uto:dipeco:201725&r=des |
| By: | Biais, Bruno; Bisière, Christophe; Bouvard, Matthieu; Casamatta, Catherine |
| Abstract: | Blockchains are distributed ledgers, operated within peer-to-peer networks. If reliable and stable, they could offer a new, cost effective, way to record transactions and asset ownership, but are they? We model the blockchain as a stochastic game and analyse the equilibrium strategies of rational, strategic miners. We show that mining the longest chain is a Markov perfect equilibrium, without forking on the equilibrium path, in line with the seminal vision of Nakamoto (2008). We also clarify, however, that the blockchain game is a coordination game, which opens the scope for multiple equilibria. We show there exist equilibria with forks, leading to orphaned blocks and also possibly to persistent divergence between different chains. |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:ide:wpaper:31763&r=des |