nep-des New Economics Papers
on Economic Design
Issue of 2017‒10‒01
twelve papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. (Il)legal Assignments in School Choice By Lars EHLERS; Thayer MORRILL
  2. Strategyproof Choice of Acts : Beyond Dictatorship By Eric BAHEL; Yves SPRUMONT
  3. Top Trading Cycles, Consistency, and Acyclic Priorities for House Allocation with Existing Tenants By Mehmet Karakaya; Bettina Klaus; Jan Christoph Schlegel
  4. Hiding Information in Open Auctions with Jump Bids By David Ettinger; Fabio Michelucci
  5. Creating a winner's curse via jump bids By David Ettinger; Fabio Michelucci
  6. Cognitive Ability and Bidding Behavior in Second Price Auctions: An Experimental Study By Lee, Ji Yong; Nayga, Rodolfo; Deck, Cary; Drichoutis, Andreas C.
  7. On Non-monetary Incentives for the Provision of Public Goods By Michela Chessa; Patrick Loiseau
  8. Solidarity for public goods under single-peaked preferences: Characterizing target set correspondences By Bettina Klaus; Panos Protopapas
  9. Games of Threats By Elon Kohlberg; Abraham Neyman
  10. The Role of Noise in Alliance Formation and Collusion in Conflicts By Boudreau, James W.; Sanders, Shane; Shunda, Nicholas
  11. Fair Utilitarianism By Marc Fleurbaey; Stéphane Zuber
  12. 2018 FIFA World Cup qualification can be manipulated By Csató, László

  1. By: Lars EHLERS; Thayer MORRILL
    Abstract: In public school choice, students with strict preferences are assigned to schools. Schools are endowed with priorities over students. Incorporating different constraints from applications, priorities are often modeled as choice functions over sets of students. It has been argued that the most desirable criterion for an assignment is fairness; there should not be a student having justified envy in the following way: he prefers some school to his assigned school and has higher priority than some student who got into that school. Justified envy could cause court cases. We propose the following fairness notion for a set of assignments : a set of assignments is legal if and only if any assignment outside the set has justified envy with some assignment in the set and no two assignments inside the set block each other via justified envy. We show that under very basic conditions on priorities, there always exists a unique legal set of assignments, and that this set has a structure common to the set of fair assignments : (i) it is a lattice and (ii) it satisfies the rural-hospitals theorem. This is the first contribution providing a “set-wise” solution for many-to-one matching problems where priorities are not necessarily responsive and schools are not active agents.
    JEL: C78 D61 D78 I20
    Date: 2017
  2. By: Eric BAHEL; Yves SPRUMONT
    Abstract: We model social choices as acts mapping states of nature to (public) outcomes. A social choice function (or SCF) assigns an act to every profile of subjective expected utility preferences over acts. A SCF is strategyproof if no agent ever has an incentive to misrepresent her beliefs about the states of nature or her valuation of the outcomes; it is ex-post efficient if the act selected at any given preference profile picks a Pareto-efficient outcome in every state of nature. We offer a complete characterization of all strategyproof and ex-post efficient SCFs. The chosen act must pick the most preferred outcome of some (possibly different) agent in every state of nature. The set of states in which an agent's top outcome is selected may vary with the reported belief profile; it is the union of all the states assigned to her by a collection of bilaterally dictatorial and bilaterally consensual assignment rules.
    Keywords: ocial choice under uncertainty, strategyproofness, subjective expected utility, dictatorship, consensuality, bilaterality
    JEL: D71
    Date: 2017
  3. By: Mehmet Karakaya; Bettina Klaus; Jan Christoph Schlegel
    Abstract: We study the house allocation with existing tenants model (introduced by Abdulkadiroglu and Sonmez, 1999) and consider rules that allocate houses based on priorities. We introduce a new acyclicity requirement for the underlying priority structure which is based on the acyclicity conditions by Ergin (2002) and Kesten (2006) for house allocation with quotas and without existing tenants. We show that for house allocation with existing tenants a top trading cycles rules is consistent if and only if its underlying priority structure satisfies our acyclicity condition. Moreover, even if no priority structure is a priori given, we show that a rule is a top trading cycles rule based on ownership adapted acyclic priorities if and only if it satisfies Pareto-optimality, individual-rationality, strategy-proofness, reallocation-proofness, and consistency.
    Keywords: consistency; house allocation; matching; strategy-proofness; top trading cycles
    JEL: C78 D70 D78
    Date: 2017–09
  4. By: David Ettinger (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine); Fabio Michelucci (CERGE-EI - Charles University [Prague])
    Abstract: We analyse a rationale for hiding information in open ascending auction formats. We focus on the incentives for a bidder to call a price higher than the highest standing one in order to prevent the remaining active bidders from aggregating more accurate information by observing the exact drop out values of the opponents who exit the auction. We show that the decision whether to allow jump bids or not can have a drastic impact on revenue and efficiency.
    Keywords: Auction, jump bids, efficiency, revenue
    Date: 2016
  5. By: David Ettinger (LEDa - Laboratoire d'Economie de Dauphine - Université Paris-Dauphine, CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique); Fabio Michelucci (CERGE-EI - Charles University [Prague])
    Abstract: We show that jump bids can be used by a bidder to create a winner's curse and preserve an informational advantage that would otherwise disappear in the course of an open ascending auction. The effect of the winner's curse is to create allocative distortions and reduce the seller's expected revenue. Two novel features of equilibrium jump bids are derived. First, the jump bid may fail to hide completely the value of the common value component. Second, a bidder with a higher type might jump bid less frequently than a bidder with a lower type.
    Keywords: jump bids,auctions,efficiency
    Date: 2016
  6. By: Lee, Ji Yong; Nayga, Rodolfo; Deck, Cary; Drichoutis, Andreas C.
    Abstract: Behavioral biases are more pronounced for individuals with lower cognitive abilities. This paper examines what connection if any there is between cognitive ability and bidding strategy in second price auctions. Despite truthful revelation being a weakly dominant strategy, previous experiments have consistently observed overbidding, which makes use of such auctions for inferring homegrown value problematic. Examining the effect of cognitive ability is important as it may help identify when one can reliably recover values from bids. The results indicate that more cognitively able subjects behave in closer accordance with theory, and that cognitive ability partially explains heterogeneity in bidding behavior.
    Keywords: Cognitive ability; Second price auction; Bid deviation; Overbidding; Laboratory experiment
    JEL: C91 C92
    Date: 2017–09–19
  7. By: Michela Chessa (Université Côte d'Azur, France; GREDEG CNRS); Patrick Loiseau (EURECOM; Max Planck Institute for Software Systems (MPI-SWS))
    Abstract: We propose a non-monetary incentive mechanism to encourage high levels of contribution in public good provision. Based on a generic public good game, we implement a variation that imposes a minimum individual contribution level and offers individuals the choice between respecting it if they decide to contribute, or contributing zero. Restricting the individuals' strategy space in that way can stimulate them toward higher eorts while leaving them the possibility of contributing zero ensures that such eorts remain voluntary. We investigate how to tune the minimum contribution level in order to maximize the total contribution and to reach a stable outcome where no individual has incentive to free-ride. Exploiting the potential nature of the game, we show that one can set the minimum contribution level such that there exists a unique potential maximizer equilibrium in which all the individuals contribute to the public good. Our work is of particular relevance to the growing eld of information economics. Specically, we provide an application of our model to data analytics projects using information with privacy implications, a domain where individuals (and regulatory provisions) consider as fundamental to be able to exercise control and where monetary compensation has so-far received little traction in practical scenarios.
    Keywords: Public goods, Potential games, Non-monetary incentives, Minimum contribution level
    JEL: C72 H41
    Date: 2017–09
  8. By: Bettina Klaus; Panos Protopapas
    Abstract: We consider the problem of choosing a set of locations of a public good on the real line R. Similarly to Klaus and Storcken (2002), we ordinally extend the agents' preferences over compact subsets of R, and extend the results of Ching and Thomson (1996), Vohra 1999), and Klaus (2001) to choice correspondences. Specifically, we show that efficiency}and either population-monotonicity or one-sided replacement-dominance characterize the class of target set correspondences on the domains of single-peaked preferences and symmetric single-peaked preferences.
    Keywords: single-peaked preferences; population-monotonicity; replacement-dominance; target set correspondences
    JEL: C71 D63 D78 H41
    Date: 2017–09
  9. By: Elon Kohlberg (Harvard Business School, Strategy Unit); Abraham Neyman (The Hebrew University of Jerusalem)
    Abstract: A game of threats on a finite set of players, N, is a function d that assigns a real number to any coalition, S ? N, such that d(S) = -d(N\S). A game of threats is not necessarily a coalitional game as it may fail to satisfy the condition d(Ø) = 0. We show that analogs of the classic Shapley axioms for coalitional games determine a unique value for games of threats. This value assigns to each player an average of the threat powers, d(S), of the coalitions that include the player.
    Date: 2017–09
  10. By: Boudreau, James W.; Sanders, Shane; Shunda, Nicholas
    Abstract: Many real-world conflicts are to some extent determined randomly by noise. The way in which noise is modeled in contest success functions (CSFs) has has important implications both for the possibility of forming cooperative relationships as well as for the features of such relationships. In a one-shot conflict, we find that when noise is modeled as an exponential parameter in the CSF, there is a range of values for which an alliance between two parties can be beneficial, whereas that is not the case for an additive noise parameter. In an infinitely repeated conflict setting with additive noise, sustaining collusion via Nash reversion strategies is easier the more noise there is and more difficult the larger the contest's prize value, while an increase in the contest's number of players can make sustaining collusion either more or less difficult, all in marked contrast to the case of an exponential noise parameter. Which noise specification is appropriate is therefore an important consideration for modeling any conflict situation.
    Keywords: Contests; conflict; alliance paradox; collusion; noise
    JEL: C72 C73 D72 D74
    Date: 2017–09–22
  11. By: Marc Fleurbaey (Woodrow Wilson School and Center for Human Values - Princeton University); Stéphane Zuber (Centre d'Economie de la Sorbonne - Paris School of Economics)
    Abstract: Utilitarianism plays a central role in economics, but there is a gap between theory, where it is dominant and applications, where monetary criteria are often used. For applications, a key difficulty for utilitarianism remains to define how utilities should be measured and compared across individuals. Drawing on Harsanyi's approach (Harsanyi, 1955) involving choices in risky situations, we introduce a new normalization of utilities that is the only one ensuring that: 1) a transfer from a rich to a poor is welfare enhancing, and 2) populations with more risk averse people have lower welfare. We embed these requirements in a new characterization of utilitarianism and study some implications of this "fair utilitarianism" for risk sharing, collective risk aversion and the design of health policy
    Keywords: Fairness; social risk; utilitarianism
    JEL: D63 D81
    Date: 2017–01
  12. By: Csató, László
    Abstract: In the European section of the 2018 FIFA World Cup qualification, 13 national teams, which are members of the Union of European Football Associations (UEFA), can qualify for the final competition. The 54 teams are divided into nine groups to play home-and-away round-robin matches in 10 matchdays. The winners of each group qualify, while the eight best second-placed teams advance to play-offs such that the four winners of play-offs also qualify. Ranking of second-placed teams differs from ranking in groups since group matches against the sixth-placed team are discarded. It is shown that this feature opens a way for manipulation: it may happen that a team is eliminated if it wins in the last matchday of group stage, but it advances to play-offs by playing a draw, provided that all other results are fixed. An example reveals that this situation might even occur in October 2017, after eight matchdays are already played in the qualification. Furthermore, by adjusting the result of only two matches played before October 2017 with an addition of one goal each, a team can strictly prefer a draw over a win in its last match as the former may advance it to play-offs, but the latter certainly leads to its elimination.
    Keywords: OR in sport, tournament ranking, football, soccer, 2018 FIFA World Cup, UEFA, axiomatic approach, manipulation
    JEL: C44 D71
    Date: 2017–09–16

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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