nep-des New Economics Papers
on Economic Design
Issue of 2017‒12‒03
seven papers chosen by
Alex Teytelboym
University of Oxford

  1. Marketing Agencies and Collusive Bidding in Online Ad Auctions By Francesco Decarolis; Maris Goldmanis; Antonio Penta
  2. Sequential round-robin tournaments with multiple prizes By Laica, Christoph; Lauber, Arne; Sahm, Marco
  3. Optimal Voting Rules under Participation Constraints By Antonin Macé; Rafael Treibich
  4. Property Rights in Sequential Exchange By Benito Arruñada; Giorgio Zanarone; Nuno Garoupa
  5. Strategy-proof Rules on Partially Single-peaked Domains By Achuthankutty, Gopakumar; Roy, Souvik
  6. Taxing Humans: Pitfalls of the Mechanism Design Approach and Potential Resolutions By Alex Rees-Jones; Dmitry Taubinsky
  7. Biodiversity, Shapely Value and Phylogenetic Trees: Some Remarks By Hubert Stahn

  1. By: Francesco Decarolis; Maris Goldmanis; Antonio Penta
    Abstract: The transition of the advertising market from traditional media to the internet has induced a proliferation of marketing agencies specialized in bidding in the auctions that are used to sell ad space on the web. We analyze how collusive bidding can emerge from bid delegation to a common marketing agency and how this can undermine the revenues and allocative efficiency of both the Generalized Second Price auction (GSP, used by Google and Microsoft-Bing and Yahoo!) and the of VCG mechanism (used by Facebook). We find that, despite its well-known susceptibility to collusion, the VCG mechanism outperforms the GSP auction both in terms of revenues and efficiency.
    JEL: C72 D44 L81 M37
    Date: 2017–10
  2. By: Laica, Christoph; Lauber, Arne; Sahm, Marco
    Abstract: We examine the fairness and intensity of sequential round-robin tournaments with multiple prizes. With three symmetric players and two prizes, the tournament is completely fair if and only if the second prize is valued half of the first prize, regardless of whether matches are organized as Tullock contests or as allpay auctions. For second prizes different from half of the first prize, three-player tournaments with matches organized as Tullock contests are usually fairer than tournaments with matches organized as all-pay auctions. However, unless the second prize is very small, they are less intense in the sense that players exert less ex-ante expected aggregate effort per unit of prize money. Moreover, we specify how the relative size of the second prize influences the extent and the direction of discrimination as well as the intensity of three-player tournaments. Finally, we show that there is no prize structure for which sequential round-robin tournaments with four symmetric players are completely fair in general.
    Keywords: Round-Robin Tournament,Multiple Prizes,Fairness,Intensity,Tullock Contest,All-Pay Auction
    JEL: C72 D72
    Date: 2017
  3. By: Antonin Macé (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille); Rafael Treibich (University of Southern Denmark)
    Abstract: We study the design of voting rules for international unions when countries’ participation is voluntary. While efficiency recommends weighting countries proportionally to their stakes, we show that accounting for participation constraints entails overweighting some countries, those for which the incentive to participate is the lowest. When decisions are not enforceable, cooperation requires the satisfaction of more stringent constraints, that may be mitigated by granting a veto power to some countries. The model has important implications for the problem of apportionment, the allocation of voting weights to countries of differing populations, where it provides a rationale for setting a minimum representation for small countries.
    Keywords: international unions, constitutional design, veto, participation constraints
    JEL: F53 D02 C61 C73
    Date: 2017–11
  4. By: Benito Arruñada; Giorgio Zanarone; Nuno Garoupa
    Abstract: We analyze the “sequential exchange” problem in which traders have incomplete information on earlier contracts. We show that under sequential exchange, it is in general not possible to simultaneously implement two key features of markets-specialization between asset ownership and control, and impersonal trade. In particular, we show that in contrast with the conventio nal wisdom in economics, strong property rights-enforceable against subsequent buyers- may be detrimental to impersonal trade. Finally, we provide conditions under which a mechanism that overcomes the tradeoff between specialization and impersonal trade exists, and we characterize such mechanism. Our results provide an efficiency rationale for how property rights are enforced in business, company and real estate transactions, and for the ubiquitousness of “formalization” institutions that the literature has narrowly seen as entry barriers.
    Keywords: Property rights, enforcement, contracts, Incomplete Information, impersonal exchange
    JEL: D23 D83 K11 K22
    Date: 2017–11
  5. By: Achuthankutty, Gopakumar; Roy, Souvik
    Abstract: We consider domains that exhibit single-peakedness only over a subset of alternatives. We call such domains partially single-peaked and provide a characterization of the unanimous and strategy-proof social choice functions on these domains. As an application of this result, we obtain a characterization of the unanimous and strategy-proof social choice functions on multi-peaked domains (Stiglitz (1974), Shepsle (1979), Epple and Romano (1996a)), single-peaked domains with respect to a partial order (Chatterji and Massó (2015)), multiple single-peaked domains (Reffgen (2015)) and single-peaked domains on graphs (Schummer and Vohra (2002)). As a by-product of our results, it follows that strategy-proofness implies tops-onlyness on these domains. Further, we show that strategy-proofness and group strategy-proofness are equivalent on these domains.
    Keywords: Partially single-peaked domain, strategy-proofness, group strategy-proofness, partly dictatorial min-max rules.
    JEL: D71 D82
    Date: 2017–10–27
  6. By: Alex Rees-Jones; Dmitry Taubinsky
    Abstract: A growing body of evidence suggests that psychological biases can lead different implementations of otherwise equivalent tax incentives to result in meaningfully different behaviors. We argue that in the presence of such failures of “implementation invariance,” decoupling the question of optimal feasible allocations from the tax system used to induce them—the “mechanism design approach” to tax analysis—cannot be the right approach to analyzing optimal tax systems. After reviewing the diverse psychologies that lead to failures of implementation invariance, we illustrate our argument by formally deriving three basic lessons that arise in the presence of these biases. First, the mechanism design approach neither estimates nor bounds the welfare computed under psychologically realistic assumptions about individuals' responses to the tax instruments used in practice. Second, the optimal allocations from abstract mechanisms may not be implementable with concrete tax policies, and vice-versa. Third, the integration of these biases may mitigate the importance of information asymmetries, resulting in optimal tax formulas more closely approximated by classical Ramsey results. We conclude by proposing that a “behavioral” extension of the “sufficient statistics” approach is a more fruitful way forward in the presence of such psychological biases.
    JEL: D03 D6 H0 H2 H21
    Date: 2017–10
  7. By: Hubert Stahn (Aix-Marseille Univ. (Aix-Marseille School of Economics), CNRS, EHESS and Centrale Marseille)
    Abstract: This paper explores the main differences between the Shapley Values of a set of taxa introduced by Haake et al. [4] and Fuchs and Jin [3], the latter having been found identical to the Fair Proportion Index (Redding and Mooers [10]). In line with Shapley [13], we identify the cooperative game basis for each of these two classes of phylogenetic games and use them (i) to construct simple formulas for these two Shapley values and (ii) to compare these different approaches. Using the set of weights of a phylogenetic tree as a parameter space, we then discuss the conditions under which these two values coincide and, if they are not the same, revisit Hartman's [5] convergence result. Finally, we compare the species ranking induced by these two values. Considering the Kendal and the Spearman rank correlation coefficient, simulations show that these rankings are strongly correlated.
    Keywords: biodiversity, phylogenetic trees, Shapley value, Fair Proportion index
    Date: 2017–11

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