nep-des New Economics Papers
on Economic Design
Issue of 2017‒10‒29
five papers chosen by
Alex Teytelboym
University of Oxford

  1. English versus Vickrey Auctions with Loss Averse Bidders By von Wangenheim, Jonas
  2. The Economics of Vendor Bids By Onur A. Koska; Ilke Onur; Frank Stähler
  3. Repeat Voting: Two-Vote May Lead More People To Vote By Sergiu Hart
  4. Ethical Voting in Multicandidate Elections By Bouton, Laurent; Ogden, Benjamin
  5. Optimal Tournaments By Drugov, Mikhail; Ryvkin, Dmitry

  1. By: von Wangenheim, Jonas (Humboldt University Berlin)
    Abstract: Evidence suggests that people evaluate outcomes relative to expectations. I analyze this expectation-based loss aversion (Köszegi and Rabin (2006, 2009)) in the context of dynamic and static auctions, where the reference point is given by the (endogenous) equilibrium outcome. If agents update their reference point during the auction, the arrival of information crucially affects equilibrium behavior. Consequently, I show that even with independent private values the Vickrey auction yields strictly higher revenue than the English auction, violating the well known revenue equivalence. Thus, dynamic loss aversion offers a novel explanation for empirically observed differences between these auction formats.
    Keywords: vickrey auction; english auction; expectation-based loss aversion; revenue equivalence; dynamic loss aversion; personal equilibrium;
    JEL: D03 D44
    Date: 2017–10–20
  2. By: Onur A. Koska (Department of Economics, Middle East Technical University, Ankara, Turkey); Ilke Onur (School of Commerce, University of South Australia, Adelaide, Australia); Frank Stähler (School of Business and Economics, University of Tübingen, Tübingen, Germany; University of Adelaide, Adelaide, Australia; CESifo, Germany)
    Abstract: This study scrutinizes the implications of a vendor bid in an open ascending auction with a seller of an indivisible good and many potential buyers. The seller can set a reserve price, and both the seller and the bidders have private signals and interdependent values. We show that no strictly increasing reserve price function exists in the presence of a vendor bid. We also show that a vendor bid must be large enough to be credible, and thus vendor bids may not be used in equilibrium. The vendor will exercise her vendor bid option if and only if her private signal is large enough.
    Keywords: Vendor Bid; Interdependent Valuation; Open Ascending Auction
    JEL: D44
    Date: 2017–10
  3. By: Sergiu Hart
    Abstract: A repeat voting procedure is proposed, whereby voting is carried out in two identical rounds. Every voter can vote in each round, the results of the first round are made public before the second round, and the final result is determined by adding up all the votes in both rounds. It is argued that this simple modification of election procedures may well increase voter participation and result in more accurate and representative outcomes.
    Date: 2017–10
  4. By: Bouton, Laurent; Ogden, Benjamin
    Abstract: We study the behavior of ethical voters in multicandidate elections. We consider two common electoral rules: plurality and majority runoff. Our model delivers crisper predictions than those of the pivotal voter model. An equilibrium always exists, and is unique for a broad range of parameter values. There are two types of equilibria: (i) the sincere voting equilibrium (voters vote for their most-preferred candidate), and (ii) Duverger's Law equilibria (two candidates attract all the votes). These never coexist. We identify the features of an election that favor sincere voting. Consistent with evidence, incentives to vote sincerely are stronger under majority runoff.
    Keywords: Ethical Voting; Group-based Voting; Majority Runoff Rule; Multicandidate Elections; Plurality Rule
    JEL: C72 D72
    Date: 2017–10
  5. By: Drugov, Mikhail; Ryvkin, Dmitry
    Abstract: We study the optimal allocation of prizes and comparative statics of multi-prize rank-order tournaments. For a principal allocating a fixed budget, we show that the winner-take-all (WTA) prize schedule is optimal when the distribution of noise has an increasing failure rate (IFR). For noise distributions with unimodal failure rates the optimal prize allocation moves closer to WTA as the noise distribution becomes smaller in the convex transform order. We also identify a natural ordering of prize schedules by how closely they approximate the WTA schedule and show that for log-concave noise distributions the equilibrium effort is monotone in this order. The impact of noise intensity on equilibrium effort is captured by the dispersive order.
    Keywords: comparative statics; convex transform order; dispersive order; failure rate; optimal allocation of prizes; tournament; unimodality
    JEL: C72 D72 D82
    Date: 2017–10

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