nep-des New Economics Papers
on Economic Design
Issue of 2017‒11‒26
seven papers chosen by
Alex Teytelboym
University of Oxford

  1. Competing Mechanisms with Limited Commitment By Suehyun Kwon
  2. European qualifiers to the 2018 FIFA World Cup can be manipulated By Csató, László
  3. Hypothetical thinking and the winner's curse: An experimental investigation By Johannes Moser
  4. Information in Tullock contest By Shitovitz, Benyamin; Selay, A.; Moreno Ruiz, Diego; Haimanko, Ori; Einy ., Ezra; Aiche, A.
  5. Information Aggregation in Dynamic Markets with Adverse Selection By Vladimir Asriyan
  6. Nondictatorial Arrovian Social Welfare Functions, Simple Majority Rule and Integer Programming By Francesca Busetto; Giulio Codognato; Simone Tonin
  7. How Well Do Structural Demand Models Work? Counterfactual Predictions in School Choice By Parag A. Pathak; Peng Shi

  1. By: Suehyun Kwon
    Abstract: This paper studies competing mechanisms with limited commitment over infinite horizon. Between a mechanism and the agent, there is perfect monitoring, but each mechanism can have arbitrary signals about the interaction between other mechanisms and the agent. I show that if the agent’s type is common knowledge, any individually rational payoffs can be sustained in a perfect Bayesian equilibrium. If the agent’s type is his private information, Pareto frontier of mechanisms’ payoffs can be obtained by repeating the static optimal screening every period; in particular, price posting with the static optimal price is the optimal mechanism. The complete information case is a strong form of folk theorem while the incomplete information case shows that folk theorem breaks down with private information even as the discount factor goes to one. Results hold with any finite number of mechanisms, any discount factor and any monitoring technology including private monitoring.
    Keywords: competing mechanisms, limited commitment, private monitoring, price posting, folk theorem
    Date: 2016
  2. By: Csató, László
    Abstract: Tournament organizers supposedly design rules such that a team cannot be better off by exerting a lower effort. It is shown that the European qualifiers to the 2018 FIFA World Cup are not strategy-proof in this sense: a team might be eliminated if it wins in the last matchday of group stage, while it advances to play-offs by playing a draw, provided that all other results do not change. An example reveals that this scenario could have happened in October 2017, after four-fifth of all matches have already been played. We present a model and identify nine incentive incompatible qualifiers to recent UEFA European Championships or FIFA World Cups. A mechanism is suggested in order to seal the way of manipulation in group-based qualification systems.
    Keywords: OR in sport; 2018 FIFA World Cup; tournament ranking; mechanism design; strategy-proofness
    JEL: C44 C72 D71
    Date: 2017–11–12
  3. By: Johannes Moser
    Abstract: There is evidence that bidders fall prey to the winner's curse because they fail to extract information from hypothetical events - like winning an auction. This paper investigates experimentally whether bidders in a common value auction perform better when the requirements for this cognitive issue - also denoted by contingent reasoning - are relaxed, leaving all other parameters unchanged. The overall pattern of the data suggests that the problem of irrational over- and underbidding can be weakened by giving the subjects ex ante feedback about their bid, but unlike related studies I also find negative effects of additional information.
    Keywords: Hypothetical thinking, cursed equilibrium, winner's curse
    JEL: D03 D44 D82 D83 C91
    Date: 2017–11
  4. By: Shitovitz, Benyamin; Selay, A.; Moreno Ruiz, Diego; Haimanko, Ori; Einy ., Ezra; Aiche, A.
    Abstract: We study the effect of changes of players' information on the equilibrium efforts and payoffs of Tullock contests in which the common value of the prize is uncertain. When the diseconomies of scale in exerting effort increase at a large (small) rate, in contests with symmetric information expected effort decreases (increases) as players become better informed, while in two-player contests with asymmetric information a player with information advantage exerts less (more) effort, in expectation, than his opponent. In classic Tullock contests with symmetric information the equilibrium expected effort and pay off are invariant to the information available to the players. And when information is asymmetric, a player's information advantage is rewarded. Moreover, in two-player contests, while both players exert the same expected effort regardless of their information, expected effort is smaller when one player has information advantage than when both players have the same information.Interestingly, the player with information advantage wins the prize less frequently than his opponent.
    Keywords: Tullock contests; Common-value; Asymmetric information; Information advantage
    JEL: D82 D44 C72
    Date: 2017–11–01
  5. By: Vladimir Asriyan (CREi, UPF, and Barcelona GSE)
    Abstract: How effectively does a decentralized marketplace aggregate information that is dis-persed throughout the economy? We study this question in a dynamic setting, in which sellers have private information that is correlated with an unobservable aggregate state. We first characterize equilibria with an arbitrary (but finite) number of informed sellers. A common feature is that each seller’s trading behavior provides an informative and con-ditionally independent signal about the aggregate state. We then ask whether the state is revealed as the number of informed sellers goes to infinity. Perhaps surprisingly, the answer is no. We provide conditions under which the amount of information revealed is necessarily bounded and does not reveal the aggregate state. When these conditions are violated, there may be coexistence of equilibria that lead to full revelation with those that do not. We discuss the implications for policies meant to enhance information dissemination in markets.
    Date: 2017
  6. By: Francesca Busetto (Universit`a degli Studi di Udine); Giulio Codognato (Universit`a degli Studi di Udine); Simone Tonin (Durham Business School)
    Abstract: In this paper, we use the linear programming approach to mechanism design, rst introduced by Sethuraman et al. (2003) and then systematized by Vohra (2011), to analyze nondictatorial Arrovian social welfare functions with and without ties. First, we provide a new and simpler proof of Theorem 2 in Kalai and Muller (1977), which characterizes the domains admitting nondictatorial Arrovian social welfare functions without ties. Then, we show that a domain containing an inseparable ordered pair admits nondictatorial Arrovian social welfare functions with ties, thereby strengthening a result previously obtained by Kalai and Ritz (1978). Finally, we propose a reformulation of the simple majority rule in the framework of integer programming with an odd or even number of agents. We use this reformulation to recast some celebrated theorems, proved by Arrow (1963), Sen (1966), and Inada (1969), which provide conditions guaranteeing that the simple majority rule is a nondictatorial Arrovian social welfare function.
    Keywords: Social Welfare Function, Simple Majority Rule, Integer Programming
    JEL: D71
    Date: 2017–11
  7. By: Parag A. Pathak; Peng Shi
    Abstract: Discrete choice demand models are widely used for counterfactual policy simulations, yet their out-of-sample performance is rarely assessed. This paper uses a large-scale policy change in Boston to investigate the performance of discrete choice models of school demand. In 2013, Boston Public Schools considered several new choice plans that differ in where applicants can apply. At the request of the mayor and district, we forecast the alternatives' effects by estimating discrete choice models. This work led to the adoption of a plan which significantly altered choice sets for thousands of applicants. Pathak and Shi (2014) update forecasts prior to the policy change and describe prediction targets involving access, travel, and unassigned students. Here, we assess how well these ex ante counterfactual predictions compare to actual outcome under the new choice sets. We find that a simple ad hoc model performs as well as the more complicated structural choice models for one of the two grades we examine. However, the structural models' inconsistent performance is largely due to prediction errors in applicant characteristics, which are auxiliary inputs. Once we condition on the actual applicant characteristics, the structural choice models outperform the ad hoc alternative in predicting both choice patterns and policy relevant outcomes. Moreover, refitting the models using the new choice data does not significantly improve their prediction accuracy, suggesting that the choice models are indeed “structural.” Our findings show that structural demand models can effectively predict counterfactual outcomes, as long there are accurate forecasts about auxiliary input variables.
    JEL: C10 C78 D12 I20
    Date: 2017–11

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