nep-des New Economics Papers
on Economic Design
Issue of 2017‒11‒12
eight papers chosen by
Alex Teytelboym
University of Oxford

  1. Facilitating the Search for Partners on Matching Platforms: Restricting Agents' Actions By Kanoria, Yash; Saban, Daniela
  2. Self-Allocation in Contests By Axel Bernergard; Karl Wärneryd
  3. Delegating performance evaluation By Igor Letina; Shuo Liu; Nick Netzer
  4. When should bidders learn reserve prices? By Onur A. Koska; Frank Stähler
  5. Understanding Parental Choices of Secondary School in England Using National Administrative Data By Simon Burgess; Ellen Greaves; Anna Vignoles
  6. An Offer You Can't Refuse? Incentives Change What We Believe By Sandro Ambuehl
  7. Permit allocation rules and investment incentives in emissions trading systems By Florens Flues; Kurt van Dender
  8. A Market Mechanism for Sustainable and Efficient Resource Use under Uncertainty By Martin F. Quaas; Ralph Winkler

  1. By: Kanoria, Yash (Stanford University); Saban, Daniela (Stanford University)
    Abstract: Two-sided matching platforms, such as those for labor, accommodation, dating, and taxi hailing, can control and optimize over many aspects of the search for partners. To understand how the search for partners should be designed, we consider a dynamic two-sided search model with strategic agents who must spend a cost to discover their value for each potential partner. We find that in many settings, the platform can mitigate wasteful search effort by restricting what agents can see/do. Surprisingly, simple restrictions can improve social welfare even when screening costs are small, and agents on each side are ex-ante homogeneous. In asymmetric markets where agents on one side have a tendency to be more selective (due to smaller screening costs or greater market power), the platform should force the more selective side of the market to reach out first, by explicitly disallowing the less selective side from doing so. This allows the agents on the less selective side to exercise more choice in equilibrium. When agents are vertically differentiated, the platform can significantly improve welfare even in the limit of vanishing screening costs, by forcing one side of the market to propose and by hiding quality information. Furthermore, a Pareto improvement in welfare is possible in this limit.
    Date: 2017–07
  2. By: Axel Bernergard; Karl Wärneryd
    Abstract: We consider contestants who must choose exactly one contest, out of several, to participate in. We show that when the contest technology is of a certain type, or when the number of contestants is large, a self-allocation equilibrium, i.e., one where no contestant would wish to change his choice of contest, results in the allocation of players to contests that maximizes aggregate equilibrium effort. For a class of oligopoly models that are equivalent to contests, this implies output maximization.
    Keywords: contests, self-allocation, effort maximization, quantity competition
    JEL: C72 D43 D44 D72 D74 L13
    Date: 2017
  3. By: Igor Letina; Shuo Liu; Nick Netzer
    Abstract: We study optimal incentive contracts with multiple agents when performance evaluation is delegated to a reviewer. The reviewer may be biased in favor of the agents, but the degree of the bias is unknown to the principal. We show that a contest, which is a contract in which the principal determines a set of prizes to be allocated to the agents, is optimal. By using a contest, the principal can commit to sustaining incentives despite the reviewer’s potential leniency bias. The optimal effort profile can be uniquely implemented by an all-pay auction with a cap, and it can also be implemented by a nested Tullock contest. Our analysis has implications for applications as diverse as the design of worker compensation, the awarding of research grants, and the allocation of foreign aid.
    Keywords: Performance evaluation, delegation, optimality of contests
    JEL: D02 D82 M52
    Date: 2017–10
  4. By: Onur A. Koska (Department of Economics, Middle East Technical University, Ankara, Turkey); Frank Stähler (School of Business and Economics, University of Tübingen, Tübingen, Germany; University of Adelaide, Adelaide, Australia; CESifo, Germany)
    Abstract: This paper discusses the role of reserve prices when the signal of each bidder is positively affiliated with the seller's signal. We distinguish three reserve price designs: a public reserve price, announced before the auction starts, a revealed reserve price, disclosed when a bid matches it, and a secret reserve price that is disclosed after the highest bid has been reached. We show that a public or a revealed reserve price are strategically equivalent, and we show that no seller will set a secret reserve price.
    Keywords: Auctions with affiliation, optimal reserve prices.
    JEL: D44
    Date: 2017–10
  5. By: Simon Burgess; Ellen Greaves; Anna Vignoles
    Abstract: We study the process of school choice in England, using a new dataset giving all the preferences of all parents seeking a school place in state secondary schools. We set out new facts on the number of choices made, the chance of getting an offer from the first choice, and whether the nearest school is first choice. We use the rich data available to describe these choices by pupil characteristics, school characteristics and neighbourhood characteristics. We show that parents do pro-actively use the choice system, but that the admissions criteria do not work well for poorer families.
    Date: 2017–10–25
  6. By: Sandro Ambuehl
    Abstract: Much of economics assumes that higher incentives increase participation in a transaction only because they exceed more people’s reservation price. This paper shows theoretically and experimentally that when information about the consequences is costly, higher incentives also change reservation prices to further increase participation. A higher incentive makes people gather information in a way that is more favorable to participation—as if they were persuading themselves to participate. Hence, incentives change not only what people choose, but also what they believe their choices entail. This result informs the debate about laws around the world that severely restrict incentives for transactions such as organ donation, surrogate motherhood, human egg donation, and medical trial participation. It helps bridge a gap between economists on the one hand and the policy makers and ethicists on the other.
    Keywords: incentives, repugnant transactions, information acquisition, inattention, experiment
    JEL: D03 D04 D84
    Date: 2017
  7. By: Florens Flues (OECD); Kurt van Dender (OECD)
    Abstract: This paper argues that, in situations where choices are made between mutually exclusive investment projects and where there are economic rents, free allocation of tradable emission permits in emissions trading systems can weaken incentives for firms to invest in less carbon-intensive technologies compared to the case where permits would be auctioned. The reason is that permit allocation rules affect economic rents differentially when different product benchmarks apply to products that are close substitutes. Examples of permit allocation rules favouring more emission-intensive technologies for outputs that are close substitutes are found in the California Cap and Trade Program and in the European Union Emissions Trading System. This lack of technology-neutrality is exacerbated in the long run as future patterns of substitutability between technologies are uncertain. Free permit allocation can broaden support for carbon pricing, but this paper shows that this carries a cost in terms of environmental effectiveness if it discourages investment in low-carbon assets.
    Keywords: average carbon prices, benchmarks, California Cap and Trade Program, carbon pricing, decarbonisation, emissions trading systems, EU ETS, permit allocation, technology neutrality
    JEL: D04 H23 H32 L51 Q48
    Date: 2017–11–15
  8. By: Martin F. Quaas; Ralph Winkler
    Abstract: Sustainability and efficiency are potentially conflicting social objectives in natural resource management. We propose a market mechanism to allocate use rights over a stochastic resource to private managers. The mechanism endogenously determines the maximal tenure length guaranteeing that the sustainability goal is obeyed for sure over the entire period. In addition, the mechanism achieves efficiency, i.e. it maximizes the expected present value of resource rents that accrue to society. Potential applications include improved fishing agreements between developing countries and distant-water fishing fleets.
    Keywords: auctioning-refunding-mechanism, efficient resource allocation, renewable resources, stochastic resource dynamics, sustainability
    JEL: Q20 D44 D82
    Date: 2017

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