nep-des New Economics Papers
on Economic Design
Issue of 2017‒08‒06
nine papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Market Design for Living-Donor Organ Exchanges: An Economic Policy Perspective By Tayfun Sönmez; M. Utku Ünver
  2. Incentivized Kidney Exchange By Tayfun Sönmez; M. Utku Ünver; M. Bumin Yenmez
  3. Dynamic Implementation, Verification, and Detection By Hitoshi Matsushima
  4. Mechanism Design with Partially Verifiable Information By Strausz, Roland
  5. Stable Marriage With and Without Transferable Utility:Nonparametric Testable Implications By Laurens Cherchye; Thomas Demuynck; Bram De Rock; Frederic Vermeulen
  6. Partition Equilibria in a Japanese-English Auction with Discrete Bid Levels for the Wallet Game By Gonçalves, Ricardo; Ray, Indrajit
  7. Coalition Formation and History Dependence By Dutta, Bhaskar; Vartiainen, Hannu
  8. How neutral is the choice of the allocation mechanism in cap-and-trade schemes? Evidence from the EU-ETS By Nicola De Vivo; Giovanni Marin
  9. Providing Efficient Network Access to Green Power Generators : A Long-term Property Rights Perspective By Petropoulos, G.; Willems, Bert

  1. By: Tayfun Sönmez (Boston College); M. Utku Ünver (Boston College)
    Abstract: Within the last decade kidney exchanges emerged as a modality of transplantation to better utilize living donation possibilities as a cross disciplinary success of medical doctors and ethicists, market design economists, and computer scientists. This paper summarizes at which fronts these efforts have been successful and what needs to be done further to increase their impact. Also this paradigm is partially being applied to liver exchanges. There are other organs for which living donation is possible and gains from exchange can be much bigger than kidneys. Recent academic work on single-graft liver and dual-donor organ exchanges for lobar lung, dual-graft liver, and simultaneous liver-kidney transplantation are also discussed.
    Keywords: Market design, organ allocation, kidney exchange, equity, efficiency
    JEL: C78
    Date: 2017–06–30
  2. By: Tayfun Sönmez (Boston College); M. Utku Ünver (Boston College); M. Bumin Yenmez (Boston College)
    Abstract: Within the last decade, kidney exchange has become a mainstream paradigm to increase the number of transplants. However, compatible pairs do not participate, and the full benefits from exchange can be realized only if they do. In this paper, we propose a new scheme, incentivizing participation of compatible pairs in exchange via insurance for a future renal failure in the patient. Efficiency and equity analyses of this scheme are conducted and compared with that of living-donor exchange in a new dynamic continuum model of kidney transplantation. We also calibrate the model with data from the US and quantify our predictions.
    Keywords: Market design, organ allocation, kidney exchange, equity, efficiency, compatible pairs
    JEL: C78
    Date: 2017–06–30
  3. By: Hitoshi Matsushima (University of Tokyo)
    Abstract: We investigate implementation of social choice functions, where we impose severe restrictions on mechanisms, such as boundedness, permitting only tiny transfers, and uniqueness of an iteratively undominated strategy profile in the ex-post term. We assume that there exists some partial information about the state that is verifiable. We consider the dynamic aspect of information acquisition, where players share information, but the timing of receiving information is different across players. By using this aspect, the central planner designs a dynamic, not a static, mechanism, in which each player announces what he (or she) knows about the state at multiple stages with sufficient intervals. By demonstrating a sufficient condition on the state and on the dynamic aspect, namely full detection, we show that a wide variety of social choice functions are uniquely implementable even if the range of players’ lies that the verified information can directly detect is quite narrow. With full detection, we can detect all possible lies, not by the verified information alone, but by processing a chain of detection triggered by this information. This paper does not assume either expected utility or quasi-linearity.
    Date: 2017–06
  4. By: Strausz, Roland (Humboldt University Berlin)
    Abstract: In mechanism design with (partially) verifiable information, the revelation principle holds if allocations are modelled as the Cartesian product of outcomes and verifiable information, giving rise to evidence-contingent mechanisms. Consequently, incentive constraints characterize the implementable set. The revelation principle does not hold when an allocation is modelled as only an outcome so that mechanisms are non-contingent. Yet, any outcome implementable by an evidence-contingent mechanism is implementable by a non-contingent mechanism, provided it can both extend and restrict reporting information. A type-independent bad outcome implies the latter property.
    Keywords: revelation principle; mechanism design; verifiable information;
    JEL: D82
    Date: 2017–08–03
  5. By: Laurens Cherchye; Thomas Demuynck; Bram De Rock; Frederic Vermeulen
    Abstract: We show that transferable utility has no nonparametrically testable implications for marriage stability in settings with a single consumption observation per house- hold and heterogeneous individual preferences across households. This completes the results of Cherchye, Demuynck, De Rock, and Vermeulen (2017), who characterized Pareto efficient household consumption under the assumption of marriage stability without transferable utility. First, we show that the nonparametric testable conditions established by these authors are not only necessary but also sufficient for rationalizability by a stable marriage matching. Next, we demonstrate that exactly the same testable implications hold with and without transferable utility between household members. We build on this last result to provide a primal and dual linear programming characterization of a stable matching allocation for the observational setting at hand. This provides an explicit specification of the marital surplus function rationalizing the observed matching behavior.
    Keywords: marriage stability; household consumption; nonparametric testable implications; transferable utility
    JEL: C14 D11 C78
    Date: 2017–07
  6. By: Gonçalves, Ricardo (Católica Porto Business School and CEGE, Universidade Católica Portuguesa); Ray, Indrajit (Economics Section, Cardiff Business School, Cardiff University,)
    Abstract: We consider the set-up of a Japanese-English auction with exogenously fi xed discrete bid levels for the wallet game with two bidders, following Gonçalves and Ray (2017). We show that in this auction, partition equilibria exist that may be separating or pooling. We illustrate some separating and pooling equilibria with two and three discrete bid levels. We also compare the revenues of the seller from these equilibria and thereby nd the optimal choices of bid levels for these cases.
    Keywords: Japanese-English auctions ; wallet game ; discrete bids, partitions ; pooling equilibrium; separating equilibrium. JEL classification numbers: C72 ; D44
    Date: 2017
  7. By: Dutta, Bhaskar (University of Warwick and Ashoka University); Vartiainen, Hannu (University of Helsinki and Helsinki Centre of Economic Research)
    Abstract: Farsighted formulations of coalitional formation, for instance by Harsanyi (1974) and Ray and Vohra(2015), have typically been based on the von Neumann- Morgenstern (1944) stable set. These farsighted stable sets use a notion of indirect dominance in which an outcome can be dominated by a chain of coalitional ‘moves’ in which each coalition that is involved in the sequence eventually stands to gain. Dutta and Vohra(2016) point out that these solution concepts do not require coalitions to make optimal moves. Hence, these solution concepts can yield unreasonable predictions. Dutta and Vohra (2016) restricted coalitions to hold common, history independent expectations that incorporate optimality regarding the continuation path. This paper extends the Dutta-Vohra analysis by allowing for history dependent expectations. The paper provides characterization results for two solution concepts corresponding to two versions of optimality. It demonstrates the power of history dependence by establishing nonemptyness results for all finite games as well as transferable utility partition function games. The paper also provides partial comparisons of the solution concepts to other solutions.
    Date: 2017
  8. By: Nicola De Vivo (IMT Institute for Advanced Studies Lucca (Italy)); Giovanni Marin (Department of Economics, Society and Politics, University of Urbino 'Carlo Bo')
    Abstract: The European Emission Trading Scheme (EU ETS) is the central EU policy instrument aimed at mitigating climate change and to comply with the target agreed in the Kyoto protocol. The EU ETS could result in an harmful impact for the competitiveness of the European firms, as it was unilaterally introduced by the EU, and so firms could be induced to relocate their carbon-intensive production activities in countries with less stringent regulations for mitigating climate change (carbon leakage effect). For this reason, European Union decided to grant most of permits for free in its first phases and to exempt leakage-exposed sectors from auctioning in its third phase. According to Coase (1960), the level of emissions for each firm in equilibrium does not depend on the assignment of property rights over the emissions but this could not be the case in a real world system, with a lot of possible frictions, as transaction costs and behavioural anomalies. The aim of the paper is to exploit the asymmetry in the allocation mechanisms introduced from the third phase of the EU ETS to evaluate whether different allocation mechanisms are neutral in terms of emission abatement decisions. Results suggest a non-neutral role of the allocation mechanisms, with establishments that received allowances for free having greater emissions than plants that were forced to buy allowances through auctions.
    Keywords: EU ETS, grandfathering, auctioning, carbon leakage
    JEL: Q54 Q58
    Date: 2017–08
  9. By: Petropoulos, G.; Willems, Bert (Tilburg University, TILEC)
    Abstract: Coordinating the timing of new production facilities is one of the challenges of liberalized power sectors. It is complicated by the presence of transmission bottlenecks, oligopolistic competition and the unknown prospects of low-carbon technologies. We build a model encompassing a late and early investment stage, an existing dirty (brown) and a future clean (green) technology and a single transmission bottleneck, and compare dynamic efficiency of several market designs. Allocating network access on a short-term competitive basis distorts investment decisions, as brown firms will preempt green competitors by investing early. Dynamic efficiency is restored with long-term transmission rights that can be traded on a secondary market. We show that dynamic efficiency does not require the existence of physical rights for accessing the transmission line, but financial rights on receiving the scarcity revenues generated by the transmission line suffice.
    Keywords: network access; congestion management; renewable energy sources; power markets
    JEL: L94 L13 C72 D43
    Date: 2017

This nep-des issue is ©2017 by Guillaume Haeringer and Alex Teytelboym. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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