nep-des New Economics Papers
on Economic Design
Issue of 2017‒09‒17
seven papers chosen by
Alex Teytelboym
University of Oxford

  1. Strategy-proofness in the Large By Eduardo M. Azevedo; Eric Budish
  2. Interim Self-Stable Decision Rules By Daeyoung Jeong; Semin Kim
  3. On Single-peaked Domains and Min-max Rules By Achuthankutty, Gopakumar; Roy, Souvik
  4. Stability, Fairness and Random Walks in the Bargaining Problem By Jakob Kapeller; Stefan Steinerberger
  5. Kidney exchange with immunosuppressants By Youngsub Chun; Eun jeong Heo; Sunghoon Heo
  6. A Property Rights Approach to Temporary Work Visas By Casella, Alessandra; Cox, Adam
  7. Swing Contracts with Dynamic Reserves for Flexible Service Management By Ma, Shanshan; Wang, Zhaoyu; Tesfatsion, Leigh

  1. By: Eduardo M. Azevedo; Eric Budish
    Abstract: We propose a criterion of approximate incentive compatibility, strategy-proofness in the large (SP-L), and argue that it is a useful second-best to exact strategy-proofness (SP) for market design. Conceptually, SP-L requires that an agent who regards a mechanism’s “prices” as exogenous to her report – be they traditional prices as in an auction mechanism, or price-like statistics in an assignment or matching mechanism – has a dominant strategy to report truthfully. Mathematically, SP-L weakens SP in two ways: (i) truth-telling is required to be approximately optimal (within epsilon in a large enough market) rather than exactly optimal, and (ii) incentive compatibility is evaluated ex interim, with respect to all full-support i.i.d. probability distributions of play, rather than ex post with respect to all possible realizations of play. This places SP-L in between the traditional notion of approximate strategy-proofness, which evaluates incentives to manipulate ex post, and the traditional notion of approximate Bayes-Nash incentive compatibility, which evaluates incentives to manipulate ex interim with respect to the single common-knowledge probability distribution associated with Bayes-Nash equilibrium.
    JEL: C72 C78 D44 D82
    Date: 2017–09
  2. By: Daeyoung Jeong (The Bank of Korea); Semin Kim (Yonsei University)
    Abstract: This study identi es a set of interim self-stable decision rules. In our model, individual voters encounter two separate decisions sequentially: (1) a decision on the change of a voting rule they are going to use later and (2) a decision on the nal voting outcome under the voting rule which has been decided from the prior procedure. A given decision rule is self-stable if any other possible rule does not get enough votes to replace the given rule under the given rule itself. We fully characterize the set of interim self-stable decision rules among weighted majority rules with given weights.
    Keywords: Weighted majority rules, decision rules, self-stability
    JEL: C72 D02 D72 D82
    Date: 2017–09
  3. By: Achuthankutty, Gopakumar; Roy, Souvik
    Abstract: We consider social choice problems where different agents can have different sets of admissible single-peaked preferences. We show every unanimous and strategy-proof social choice function on such domains satisfies Pareto property and tops-onlyness. Further, we characterize all domains on which (i) every unanimous and strategy-proof social choice function is a min-max rule, and (ii) every min-max rule is strategy-proof. As an application of our result, we obtain a characterization of the unanimous and strategy-proof social choice functions on maximal single-peaked domains (Moulin (1980), Weymark (2011)), minimally rich single-peaked domains (Peters et al. (2014)), maximal regular single-crossing domains (Saporiti (2009), Saporiti (2014)), and distance based single-peaked domains.
    Keywords: Strategy-proofness, single-peaked preferences, min-max rules, min-max domains, top-connectedness, Pareto property, tops-onlyness.
    JEL: D71 D82
    Date: 2017–09–15
  4. By: Jakob Kapeller; Stefan Steinerberger
    Abstract: We study the classical bargaining problem and its two canonical solutions, (Nash and Kalai-Smorodinsky), from a novel point of view: we ask for stability of the solution if both players are able distort the underlying bargaining process by reference to a third party (e.g. a court). By exploring the simplest case, where decisions of the third party are made randomly we obtain a stable solution, where players do not have any incentive to refer to such a third party. While neither the Nash nor the Kalai-Smorodinsky solution are able to ensure stability in case reference to a third party is possible, we found that the Kalai-Smorodinsky solution seems to always dominate the stable allocation which constitutes novel support in favor of the latter.
    Date: 2017–08
  5. By: Youngsub Chun (Seoul National University); Eun jeong Heo (Vanderbilt University); Sunghoon Heo (Korea Institute of Public Finance)
    Abstract: We investigate the implications of introducing immunosuppressants to the kidney exchange problem. Immunosuppressants relax biological constraints between patients and donors, allowing patients to receive transplants from any donor. Given the limited availability, we propose how to assign immunosuppressants and how to match patients to donors to facilitate transplants. We ask whether there exist Pareto efficient solutions that satisfy additional requirements of monotonicity and maximal improvement. We propose modifications of the top-trading cycles solutions to achieve these requirements. To quantify the welfare improvement as per our proposal, we conduct counterfactual analyses using transplant data from South Korea. Our result suggests that the current use of immunosuppressants could have been reduced by 55 percent.
    Keywords: immunosuppressants, kidney exchange, top-trading cycles rules, Pareto efficiency, monotonicity, maximal improvement
    JEL: D0
    Date: 2017–09–06
  6. By: Casella, Alessandra; Cox, Adam
    Abstract: Temporary labor visa rules in the United States are criticized on three grounds: for failing to allocate visas efficiently, for failing to adequately protect domestic workers, and for exposing migrant workers to exploitation. We argue that it is possible to address all three problems by re-configuring the property rights associated with the visas and carefully designing the mechanism for allocating those rights. Our core insight is to unbundle the two rights that today are typically combined: the firm's right to employ a foreign worker, and the worker's right to reside and work in the country during that time. A three-pronged approach-auctioning abstract pre-contract visas to firms, allowing their trade on a secondary market, and transferring the visa's ownership to the worker upon signature of the employment contract-has the potential to improve the efficiency of visa allocation, to better shield domestic workers, and to protect foreign workers from exploitation.
    Keywords: immigration policy; Property rights; work visas
    JEL: F22 J08 J61
    Date: 2017–09
  7. By: Ma, Shanshan; Wang, Zhaoyu; Tesfatsion, Leigh
    Abstract: The increasing penetration of variable energy resources in modern electric power systems requires additional flexibility in ancillary service provision to maintain reliable and efficient grid operations. However, full recognition and appropriate compensation of this flexibility is difficult to ensure within current power market designs due to rigidities in service definitions and requirements. For example, reserve requirements (RRs) are typically set in advance at administratively determined levels. If RRs are too large, wasteful expenditures result; and, if RRs are too small, high real-time costs are incurred for peak generation and/or load curtailment. To address these problems, this paper proposes a new mixed-integer linear programming (MILP) formulation for the optimal clearing of a day-ahead market based on swing contracts and a dynamic reserve method permitting the daily adaptive updating of reserve zones. Numerical examples based on a 5-bus test system are used to illustrate the effectiveness of the proposed new day-ahead market design.
    Date: 2017–09–04

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