nep-des New Economics Papers
on Economic Design
Issue of 2018‒01‒01
six papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Two-sided strategy-proofness in many-to-many matching markets By Triossi, Matteo; Romero-Medina, Antonio
  2. Matching Strategies of Heterogeneous Agents under Incomplete Information in a University Clearinghouse By Britta Hoyer; Nadja Stroh-Maraun
  3. The multiplier effect in two-sided markets with bilateral investments By Dizdar, Deniz; Moldovanu, Benny; Szech, Nora
  4. An Experimental Study on Sequential Auctions with Privately Known Capacities By Luca Corrazzini; Stefano Galavotti; Paola Valbonesi
  5. Does the Design of Spot Markets Matter for the Success of Futures Markets? Evidence from Dairy Futures By Jędrzej Białkowski; Jan Koeman
  6. Fixed Point Approaches to the Proof of the Bondareva-Shapley Theorem By Jean Guillaume Forand; Metin Uyanik

  1. By: Triossi, Matteo; Romero-Medina, Antonio
    Abstract: We study the existence of group strategy-proof stable rules in many to-many matching markets. We show that when firms have acyclical preferences over workers the set of stable matchings is a singleton, and the worker-optimal stable mechanism is a stable and group strategy-proof rule for firms and workers. Furthermore, acyclicity is the minimal condition guaranteeing the existence of stable and strategy-proof mechanisms in many-to-many matching markets.
    Keywords: Singleton core; Two-sided Group Strategy-proofness; Stability; Acyclicity; Many-to-many markets
    JEL: D78 D71 C78 C71
    Date: 2017–12–18
  2. By: Britta Hoyer (Paderborn University); Nadja Stroh-Maraun (Paderborn University)
    Abstract: In actual school choice applications the theoretical underpinnings of the Boston School Choice Mechanism (BM) (complete information and rationality of the agents) are often not given. We analyze the actual behavior of agents in such a matching mechanism, using data from the matching mechanism currently used in a clearinghouse at a faculty of Business Administration and Economics at a German university, where a variant of the BM is used, and supplement this data with data generated in a survey among students who participated in the clearinghouse. We find that under the current mechanism over 70% of students act strategically. Controlling for students' limited information, we find that they do act rationally in their decision to act strategically. While students thus seem to react to the incentives to act strategically under the BM, they do not seem to be able to use this to their own advantage. However, those students acting in line with their beliefs manage a significantly better personal outcome than those who do not. We also run simulations by using a variant of the deferred acceptance algorithm, adapted to our situation, to show that the use of a different algorithm may be to the students' advantage.
    Keywords: Matching, Application of the Boston Mechanism, School Choice, Strategic Behavior, Incomplete Information
    JEL: C78 D82
    Date: 2017–12
  3. By: Dizdar, Deniz; Moldovanu, Benny; Szech, Nora
    Abstract: Agents in a finite two-sided market make costly investments and are then matched assortatively based on these investments. Besides signaling complementary types, investments also generate benefits for partners. We shed light on quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents' uncertainty about their rank within their own market side and on their uncertainty about the types and investments of potential partners. We study how the multiplier effect depends on market size and how it interacts with other important factors such as the costs of investment and the signaling incentives induced by competition for more desirable partners. We use our results to characterize equilibrium utilities in large markets. For small markets, our results lead to bounds on the hold-up problem.
    Keywords: matching,signaling,investment,multiplier effect
    JEL: C78 D44 D82
    Date: 2017
  4. By: Luca Corrazzini (Department of Economics, University Of Venice Cà Foscari; ISLA, Bocconi University, Milan); Stefano Galavotti (Department of Economics and Management, University of Padua); Paola Valbonesi (University of Padua; National Research University Higher School of Economics, Moscow and Perm)
    Abstract: We experimentally study bidding behavior in sequential first-price procurement auctions where bidders’ capacity constraints are private information. Treatment differs in the ex-ante probability distribution of sellers’ capacities and in the (exogenous) probability that the second auction is actually implemented. Our results show that: (i) bidding behavior in the second auction conforms with sequential rationality; (ii) while first auction’s bids negatively depend on capacity, bidders seem unable to recognize this link when, at the end of the first auction, they state their beliefs on the opponent’s capacity. To rationalize this inconsistency between bids and beliefs, we conjecture that bidding in the first auction is also affected by a hidden, behavioral type – related to the strategic sophistication of bidders – that obfuscates the link between capacity and bids. Building on this intuition, we show that a simple level-k model may help explain the inconsistency.
    Keywords: Sequential auctions, capacity constraints, belief inconsistency
    JEL: D44 D91 H57
    Date: 2017
  5. By: Jędrzej Białkowski (University of Canterbury); Jan Koeman
    Abstract: This study provides evidence of the importance of a well-defined and functioning spot market for the success of the associated futures market. The United States (US) spot market for nonfat dry milk has several distinct pricing indices, whereas the New Zealand (NZ) market has a single spot reference price. Our analysis of hedging effectiveness and hedge ratio persistence shows that none of the US spot market indices may be hedged effectively with the Chicago Mercantile Exchange nonfat dry milk futures at short hedging horizons, whereas the NZ Stock Exchange whole milk powder futures contract is an effective hedge for the Global Dairy Trade spot pricing benchmark. Four important dimensions of spot market design are identified – timeliness, market-based measurement, forward-spot separation, and inclusiveness.
    Keywords: Agricultural Commodities, Hedging; Futures Market Effectiveness; Spot Market Design, Dairy, CME NFDM Futures, NZX WMP Futures, Settlement to Average Spot Price
    JEL: G13 G14 Q14 Q17
    Date: 2017–12–01
  6. By: Jean Guillaume Forand (Department of Economics, University of Waterloo); Metin Uyanik (School of Economics, University of Queensland)
    Abstract: We provide two new proofs of the Bondareva-Shapley theorem, which states that the core of a transferable utility cooperative is nonempty if and only if the game is balanced. Both proofs exploit the fixed points of self-maps of the set of imputations, applying elementary existence arguments typically associated with noncooperative games to cooperative games.
    JEL: C71 C62
    Date: 2017–11

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