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

  1. The Short and Long Run Impacts of Centralized Clearinghouses: Evidence from Matching Teach For America Teachers to Schools By Jonathan M.V. Davis
  2. Competing Combinatorial Auctions By Kittsteiner, Thomas; Ott, Marion; Steinberg, Richard
  3. Preferences and decision support in competitive bidding By Fugger, Nicolas; Gillen, Philippe; Rasch, Alexander; Zeppenfeld, Christopher
  4. Contract (re-)negotiation with private and common values By Gretschko, Vitali; Wambach, Achim
  5. An evolutionary analysis of bidding behaviour in fair division games By Werner Güth; Paul Pezanis-Christou
  6. The problem of aggregating experts?' opinions to select the winner of a competition By Pablo Amorós
  7. Choice on the simplex domain By Bossert, Walter; Peters, Hans

  1. By: Jonathan M.V. Davis
    Abstract: Many labor markets have adopted centralized clearinghouses using variants of the deferred acceptance algorithm (DAA) in hopes of improving market outcomes. Despite the prevalence of these clearinghouses, evidence of their impacts is limited. This paper presents the first evidence from a field experiment of the impacts of adopting the DAA on short- and long-run match outcomes from a new application of market design. I worked with Teach for America (TFA) to match high school teachers to schools in Chicago using the DAA at a series of âinterview days,â while keeping its original âFirst Offer Mechanismâ (FOM) unchanged for elementary school teachers. I show that the FOM gives almost no autonomy to teachers and promotes strategic early hiring in theory and in practice. In contrast, the variant of the DAA I implemented allows teachers to pick their most preferred offer and I show that it is non-manipulable via preferences by either teachers or schools. I use a difference-in-difference strategy - comparing changes in outcomes over time for TFA high school teachers to the change among TFA elementary school teachers in Chicago - to measure the impact of adopting the DAA on short-run outcomes, like matches, hiring, sorting across schools, and preferences over matches, and on three long-run outcomes: teachersâ retention, satisfaction, and performance. I find that adopting the DAA reduces attrition through teachersâ two-year commitment to TFA by 9.9 percentage points (pp). This effect is driven by a 7.2 pp reduction in attrition prior to TFAâs initial summer training. While teachers were happier, they were not more productive. Using TFAâs preferred performance metric, I estimate that teachers who could have been matched with the DAA were 0.3 standard deviations less effective in their first year, but were nearly equally effective in their second year. However, up to two thirds of the decline in first-year performance can be attributed to the DAA shifting teachers to schools with lower average performance. The decline is not explained by higher retention among lower performing teachers. Revealed preference suggests the DAA was better for TFA Chicago: it was used at all of its interview days in 2015 and 2016.
    JEL: I2 L3 M12
    Date: 2017–11–27
  2. By: Kittsteiner, Thomas; Ott, Marion; Steinberg, Richard
    Abstract: We investigate if and how revenue-maximizing auctioneers restrict combinatorial bidding in the presence of auctioneer competition. Two sellers offer the same set of two heterogeneous items to six bidders in a VCG mechanism. Each bidder desires either the first item, the second item, or the package of both items. First, each seller decides on which packages to allow bids. Then, each bidder selects which of the two sellers’ auctions to participate in. We find that, in contrast to a monopolistic seller, duopolistic sellers do not both offer an unrestricted VCG mechanism, i.e., a combinatorial auction. Rather they segment the market via their respective choice of allowable package bids: One seller attracts bidders who desire a single item; the other seller attracts bidders who desire both items.
    Keywords: Auctioneer competition,Combinatorial auctions,VCG mechanism
    JEL: D44 C72 D82
    Date: 2017
  3. By: Fugger, Nicolas; Gillen, Philippe; Rasch, Alexander; Zeppenfeld, Christopher
    Abstract: We examine bidding behavior in first-price sealed-bid and Dutch auctions, which are strategically equivalent under standard preferences. We investigate whether the empirical breakdown of this equivalence is due to (non-standard) preferences or due to the different complexity of the two formats (i.e., a different level of mathematical/ individual sophistication needed to derive the optimal bidding strategy). We first elicit measures of individual preferences and then manipulate the degree of complexity by offering various levels of decision support. Our results show that the equivalence of the two auction formats only breaks down in the absence of decision support. This indicates that the empirical breakdown is caused by differing complexity between the two formats rather than non-standard preferences.
    Keywords: Auctions,Decision support system,Experiment,Loss aversion,Preferences
    JEL: D44 D81
    Date: 2017
  4. By: Gretschko, Vitali; Wambach, Achim
    Abstract: We analyze the contracting problem of a principal who faces an agent with private information and cannot commit to not renegotiating a chosen contract. We model this by allowing the principal to propose new contracts any number of times after observing the contract choice of the agent. We propose a characterization of renegotiation-proof states of this (re-)negotiation and show that those states are supported by a perfect Bayesian equilibrium of an infinite horizon game. The characterization of renegotiation-proof states provides a tool, which is both powerful and simple to use, for finding such states in specific environments. We proceed by applying the results to adverse selection environments with private and common values. We show that with private values and common values of the "Spence" type only, fully efficient and separating states can be renegotiation-proof. With common values of the "Rothschild-Stiglitz" type inefficient and (partial) pooling states may be renegotiation-proof.
    Keywords: principal-agent models,renegotiation,Coase-conjecture
    JEL: C73 C78 D82
    Date: 2017
  5. By: Werner Güth (Max Planck Institute for Collective Goods (Bonn) and LUISS (Rome)); Paul Pezanis-Christou (School of Economics, University of Adelaide)
    Abstract: We justify risk neutral equilibrium bidding in commonly known fair division games with incomplete information and counterfactual considerations via (i) optimally responding to individual conjectural beliefs concerning other bidders' behavior, what avoids counterfactual bidding, and (ii) determining the evolutionarily stable conjectural beliefs when fitness is measured by expected payoffs, what does not require common knowledge. Compared to auctions, fair division games feature interactive bidding contests in closed groups due to sharing the sales price equally among bidders. We axiomatically justify the game forms of first- and second-price fair division games, the former (latter) being over-bidding (under-bidding) proof, and we provide a condition for evolutionarily stable bidding to coincide with equilibrium bidding irrespectively of the number of bidders.
    Date: 2017–10
  6. By: Pablo Amorós (Department of Economics, University of Málaga)
    Abstract: The honest opinions of a group of experts must be aggregated to determine the deserving winner of a competition. The aggregation procedure is majoritarian if, whenever a majority of experts honestly believe that a contestant is the best one, then that contestant is considered the deserving winner. The fact that an expert believes that a contestant is the best one does not necessarily imply that she wants this contestant to win as, for example, she might be biased in favor of some other contestant. Then, we have to design a mechanism that implements the deserving winner. We show that, if the aggregation procedure is majoritarian, such a mechanism exists only if the experts are totally impartial. This impossibility result is very strong as it does not depend on the equilibrium concept considered. Moreover, the result still holds if we replace majoritarianism by anonymity and other reasonable property called respect for the jury. The impossibility result is even stronger if we focus on Nash implementation: no majoritarian aggregation procedure can be Nash implemented even if the experts are totally impartial.
    Keywords: mechanism design; aggregation of experts? opinions; jury
    JEL: C72 D71 D78
    Date: 2017–11
  7. By: Bossert, Walter (centre interuniversitaire de recherche en economie quantitative (cireq)); Peters, Hans (QE / Mathematical economics and game the)
    Abstract: One unit of a good has to be divided among a group N of individuals who each are entitled to a minimal share and these shares sum up to less than one. The associated set of choice problems consists of the unit simplex and all its full-dimensional subsimplices with the same orientation. We characterize all choice rules that are independent of irrelevant alternatives, continuous, and monotonic. The resulting rules are what we refer to as N-path choice functions. If there are only three individuals, the monotonicity property can be weakened. We also consider the issue of rationalizability and show that, for the threeagent case, excluding cycles of length three in the revealed preference relation implies the strong axiom of revealed preference, that is, the exclusion of cycles of any length.
    Keywords: choice functions, simplex domain, rationalizability
    JEL: D11 D71
    Date: 2017–12–05

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