nep-des New Economics Papers
on Economic Design
Issue of 2017‒09‒03
eleven papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Dynamic Mechanism Design: An Introduction By Dirk Bergemann; Juuso Valimaki
  2. Partially-honest Nash implementation: a full characterization By Michele Lombardi; Naoki Yoshihara
  3. Fair Division with Uncertain Needs By Xue, Jingyi
  4. A concept of sincerity for combinatorial voting By Francesco De Sinopoli; Claudia Meroni
  5. Meetings and Mechanisms By Xiaoming Cai; Pieter Gautier; Ronald Wolthoff
  6. Arranged Marriages under Transferable Utilities By Pauline Morault
  7. (Non)Randomization: A Theory of Quasi-Experimental Evaluation of School Quality By Yusuki Narita
  8. The structure of priority in the school choice problem By Duddy, Conal
  9. Accountability in Complex Procurement Tenders By Bernard Caillaud; Ariane Lambert-Mogiliansky
  10. Spontaneous Segregation of Agents Across Double Auction Markets By Aleksandra Alori\'c; Peter Sollich; Peter McBurney
  11. Liquidity Shocks, Market Maker Turnover, and Bidding Behavior in Treasury Auctions By Martín Gonzalez-Eiras; Jesper Rüdiger

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Juuso Valimaki (Aalto School of Economics)
    Abstract: We provide an introduction into the recent developments of dynamic mechanism design with a primary focus on the quasilinear case. First, we describe socially optimal (or efficient) dynamic mechanisms. These mechanisms extend the well known Vickrey-Clark-Groves and D’Aspremont-Gérard-Varet mechanisms to a dynamic environment. Second, we discuss results on revenue optimal mechanism. We cover models of sequential screening and revenue maximizing auctions with dynamically changing bidder types. We also discuss models of information management where the mechanism designer can control (at least partially) the stochastic process governing the agent’s types. Third, we consider models with changing populations of agents over time. This allows us to address new issues relating to the properties of payment rules. After discussing related models with risk-averse agents, limited liability, and different performance criteria for the mechanisms, we conclude by discussing a number of open questions and challenges that remain for the theory of dynamic mechanism design.
    Keywords: Dynamic Mechanism Design, Sequential Screening, Dynamic Pivot Mechanism, Bandit Auctions, Information Management
    JEL: D44 D82 D83
    Date: 2017–08
  2. By: Michele Lombardi (Adam Smith Business School, University of Glasgow); Naoki Yoshihara (Department of Economics, University of Massachusetts Amherst)
    Abstract: A partially-honest individual is a person who follows the maxim, "Do not lie if you do not have to" to serve your material interest. By assuming that the mechanism designer knows that there is at least one partially-honest individual in a society of n≥3 individuals, a social choice rule (SCR) that can be Nash implemented is termed partially-honestly Nash implementable. The paper o¤ers a complete characterization of the n-person SCRs that are partially-honestly Nash implementable. It establishes a condition which is both necessary and su¢ cient for the partially-honest Nash implementation. If all individuals are partially-honest, then all SCRs that satisfy the property of unanimity are partially-honestly Nash implementable. The partially-honest Nash implementation of SCRs is examined in a variety of environments.
    Keywords: Nash implementation, Pure strategy Nash equilibrium, Partial-honesty, Condition μ
    JEL: C72 D71
    Date: 2017–08
  3. By: Xue, Jingyi (School of Economics, Singapore Management University)
    Abstract: Imagine that agents have uncertain needs and a resource must be divided before uncertainty resolves. In this situation, waste typically occurs when the assignment to an agent turns out to exceed his realized need. How should the resource be divided in the face of possible waste? This is a question out of the scope of the existing rationing literature. Our main axiom to address the issue is no domination. It requires that no agent receive more of the resource than another while producing a larger expected waste, unless the other agent has been fully compensated. Together with conditional strict endowment monotonicity, consistency, and strong upper composition, we characterize a class of rules which we call expected-waste constrained uniform gains rules. Such a rule is associated with a function that aggregates the two components of cost generated by an agent at an allocation: the amount of the resource assigned to him and the expected waste he generates. The rule selects the allocation that equalizes as much as possible the cost generated by each agent. Moreover, we characterize the subclasses of rules associated with homothetic and linear cost functions. Lastly, to appreciate the role of no domination, we establish all the characterizations with a decomposition of no domination into two axioms: risk aversion and no reversal. They respectively capture that a rule should not ignore the claim uncertainty, and neither should it be too sensitive to the claim uncertainty.
    Keywords: Claims Problems; Need Uncertainty; Fair Division; Waste; Expected-waste Constrained Uniform Gains Rule; Rationing; Bankruptcy
    JEL: C71 D63 D74 D81
    Date: 2017–01–03
  4. By: Francesco De Sinopoli (Department of Economics (University of Verona)); Claudia Meroni (Department of Economics (University of Verona))
    Abstract: A basic problem in voting theory is that all the strategy profiles in which nobody is pivotal are Nash equilibria. We study elections where voters decide simultaneously on several binary issues. We extend the concept of conditional sincerity introduced by Alesina and Rosenthal (1996) and propose an intuitive and simple criterion to refine equilibria in which players are not pivotal. This is shown to have a foundation in a refinement of perfection that takes into account the material voting procedure. We prove that in large elections the proposed solution is characterized through a weaker definition of Condorcet winner and always survives sophisticated voting.
    Keywords: Voting theory, multi-issue elections, strategic voting, perfect equilibrium.
    JEL: C72 D72
    Date: 2017–01
  5. By: Xiaoming Cai; Pieter Gautier; Ronald Wolthoff
    Abstract: We analyze a market in which sellers compete for heterogeneous buyers by posting mechanisms. A general meeting technology governs how buyers and sellers meet. We introduce a one-to-one transformation of this meeting technology that helps to clarify and extend many of the existing results in the literature, which has focused on two special cases: urn-ball and bilateral meetings. We show that the optimal mechanism for sellers is to post auctions combined with a reserve price equal to their own valuation and an appropriate fee (or subsidy) which is paid by (or to) all buyers meeting the seller. Even when there are externalities in the meeting process, the equilibrium is efficient. Finally, we analyze the sorting patterns between heterogeneous buyers and sellers and show under which conditions high-value sellers attract more high-value buyers in expectation.
    Keywords: search frictions, matching function, meeting technology, competing mechanisms, heterogeneity
    JEL: C78 D44 D83
    Date: 2017–08–30
  6. By: Pauline Morault (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique - ECM - Ecole Centrale de Marseille, Sciences Po Paris, Department of Economics)
    Abstract: In many societies, marriage is a decision taken at the familial level. Arranged marriages are documented from Renaissance Europe to contemporary rural Kenya, and are still prevalent in many parts of the developing world. However, this family dimension has essentially been neglected by the existing matching literature on marriages. The objective of this paper is to introduce family considerations into the assignment game. We explore how shifting decision-making to the family level affects matching on the marriage market. We introduce a new concept of familial stability and find that it is weaker than individual stability. The introduction of families into the marriage market generates coordination problems, so the central result of the transferable utility framework no longer holds: a matching can be family-stable even if it does not maximize the sum of total marital surpluses. Interestingly, even when the stable matching is efficient, family decision-making drastically modifies how the surplus is shared-out. These results may have fundamental implications for pre-marital investments. We find that stable matchings depend on the type of family partitioning. Notably, when each family contains one son and one daughter, familial and individual stability are equivalent.
    Keywords: marriage,family,matching,transferable utility
    Date: 2017–06
  7. By: Yusuki Narita (Cowles Foundation, Yale University)
    Abstract: Many centralized school admissions systems use lotteries to ration limited seats at oversubscribed schools. The resulting random assignment is used by empirical researchers to identify the effect of entering a school on outcomes like test scores. I first find that the two most popular empirical research designs may not successfully extract a random assignment of applicants to schools. When do the research designs overcome this problem? I show the following main results for a class of data-generating mechanisms containing those used in practice: One research design extracts a random assignment under a mechanism if and practically only if the mechanism is strategy-proof for schools. In contrast, the other research design does not necessarily extract a random assignment under any mechanism.
    Keywords: Matching Market Design, Natural Experiment, Program Evaluation, Random Assignment, Quasi-Experimental Research Design, School Eectiveness
    Date: 2016–12
  8. By: Duddy, Conal
    Abstract: In a school choice problem each school has a priority ordering over the set of students. These priority orderings depend on criteria such as whether a student lives within walking distance or has a sibling already at the school. I argue that by including just the priority orderings in the problem, and not the criteria themselves, we lose important information. More particularly, the priority orderings fail to capture important aspects of the information from which they are derived when a student may satisfy a given criterion across multiple schools. This loss of information results in mechanisms that discriminate between students in ways that are not easy to justify. I propose an extended formulation of the school choice problem wherein a “priority matrix”, indicating which criteria are satisfied by each student-school pair, replaces the usual profile of priority orderings.
    Keywords: school choice; matching; priority ordering; deferred acceptance
    JEL: C78 H40 I28
    Date: 2017–05–24
  9. By: Bernard Caillaud (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Ariane Lambert-Mogiliansky (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper addresses the issue of favoritism at the design stage of complex procurement auctions. A local community of citizens wants to procure a complex good or project and lacks the ability to translate its preferences into operational technical specifications. This task is delegated to a public officer who may collude with one of the firms at the design stage of the procurement auction in exchange of a bribe. Assuming that it is prohibitively costly to provide a justification for many aspects, we investigate two simple accountability mechanisms that ask the public officer to justify one aspect of the project, with the threat of being punished if he fails: a random challenge mechanism and an alert-based mechanism that requires justifying one aspect on which the rivals of the winning contractor send a red ag. Relying on losing contractors enables the community to deter favoritism significantly more easily than the random challenge procedure as it allows to use information that is shared by potential contractors in the industry. The level of penalty needed to fully deter corruption is lower, independent of the complexity of the project and depends on the degree of differentiation within the industry. Below this threshold, favoritism occurs in some states of nature and we characterize and compare the different equilibrium patterns of corruption under both mechanisms. A more elaborate example suggests that the alert-based mechanism tends to lead to more standard specifications of projects.
    Keywords: Procurement auctions,favoritism,accountability mechanism,D73, D82, H57
    Date: 2017–06
  10. By: Aleksandra Alori\'c; Peter Sollich; Peter McBurney
    Abstract: In this paper we investigate the possibility of spontaneous segregation into groups of traders that have to choose among several markets. Even in the simplest case of two markets and Zero Intelligence traders, we are able to observe segregation effects below a critical value Tc of the temperature T; the latter regulates how strongly traders bias their decisions towards choices with large accumulated scores. It is notable that segregation occurs even though the traders are statistically homogeneous. Traders can in principle change their loyalty to a market, but the relevant persistence times become long below Tc.
    Date: 2017–08
  11. By: Martín Gonzalez-Eiras (Department of Economics, University of Copenhagen); Jesper Rüdiger (Department of Economics, University of Copenhagen)
    Abstract: We use bid data from Argentinian Treasury bill auctions from 1996 to 2000 to study how banks' balance sheet and past performance a ect bidding behavior. Exploiting variation in regulations for market making activity we show that when banks fear losing their market maker status, they bid more aggressively. They also bid more aggressively for existing securities that are reissued when the regulation tightens the requirements for secondary market participation. Consistent with regulations which imply that auctioned securities are not a prime source of liquidity, we find that banks which face liquidity needs bid less aggressively for them. A novel implication of our results is that in institutional settings that feature turnover of market makers, bidding behavior should be modeled in a dynamic setting. We introduce a dynamic model and show that static estimates over-predict true valuations when market makers may lose their status.
    Keywords: Treasury Auctions; Multi-unit Auctions; Structural Estimation; Bidding Behavior; Balance-sheet; Data; Market Making
    JEL: D44 G12 G21 L10 L13
    Date: 2017–08–21

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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