nep-des New Economics Papers
on Economic Design
Issue of 2018‒03‒26
five papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Carpooling and the Economics of Self-Driving Cars By Michael Ostrovsky; Michael Schwarz
  2. Sequential Search Auctions with a Deadline By JOOSUNG LEE; DANIEL Z. LI
  3. Auctions with Limited Liability through Default or Resale By Marco Pagnozzi; Krista J. Saral
  4. The role of domain restrictions in mechanism design: ex post incentive compatibility and Pareto efficiency By Salvador Barberà; Dolors Berga; Bernardo Moreno
  5. Implementation by vote-buying mechanisms By Jon X. Eguia; Dimitrios Xefteris

  1. By: Michael Ostrovsky; Michael Schwarz
    Abstract: We study the interplay between autonomous transportation, carpooling, and road pricing. We discuss how improvements in these technologies, and interactions among them, will affect transportation markets. Our main results show how to achieve socially efficient outcomes in such markets, taking into account the costs of driving, road capacity, and commuter preferences. An important component of the efficient outcome is the socially optimal matching of carpooling riders. Our approach shows how to set road prices and how to share the costs of driving and tolls among carpooling riders in a way that implements the efficient outcome.
    JEL: C78 L91
    Date: 2018–02
  2. By: JOOSUNG LEE (University of Edinburgh); DANIEL Z. LI (Durham Business School)
    Abstract: seller wants to allocate an indivisible product among a number of potential buyers by a finite deadline, and to contact a buyer, she needs to pay a positive search cost. We investigate the optimal mechanism for this problem, and show that its outcomes can be implemented by a sequence of second-price auctions. The optimal sequential search auction is characterized by declining reserve prices and increasing search intensities (sample sizes) over time, and the monotonicity results are robust in both cases of short-lived and long-lived bidders. When bidders are long-lived the optimal reserve prices demonstrate a one-step-ahead property, and our results generalize the well-known results in sequential search problems (Weitzman, 1979). We further examine an efficient search mechanism, and show that it is featured by both lower reserve prices and search intensities than an optimal search mechanism.
    Keywords: sequential search, search mechanism, auction, deadline, sample size, reserve prices
    JEL: D44 D82 D83
    Date: 2018–03
  3. By: Marco Pagnozzi (Università di Napoli Federico II and CSEF); Krista J. Saral (Webster University Geneva and CNRS, GATE Lyon St Etienne)
    Abstract: If bidders are uncertain about their value when they participate in an auction, they may overbid and suffer ex-post losses. Limited liability mitigates these losses, and may result in more aggressive bidding and higher seller revenue, but also in an inefficient allocation. Using a combination of theory and experiment, we analyze three different forms of liability in second-price auctions: full liability, limited liability by default with varying penalties, and resale-based limited liability. With a default penalty, bids are higher than under full liability, but final revenue and efficiency are lower due to the frequency of default. Auctions with resale result in the highest revenue and allocative efficiency, and are as effective as a low default penalty in alleviating bidders’ losses. Hence, allowing resale as a form of limited liability may be preferred by both bidders and sellers over other liability rules.
    Keywords: Auctions, Limited Liability, Default, Resale, Experimental Economics
    JEL: D44 C90
    Date: 2018–03–10
  4. By: Salvador Barberà; Dolors Berga; Bernardo Moreno
    Abstract: Abstract: The possibility of designing efficient, ex-post incentive compatible, single valued direct mechanisms crucially depends on the domain of types and preferences on which they are defined. In a general framework that allows for interdependent types, we identify two relevant classes of domains. For the class of those that we call knit, we show that only the constant mechanisms can be ex post (or even interim) incentive compatible. We then propose a concept of ex post group incentive compatibility that implies Pareto efficiency on the range of mechanisms, and show that this strong condition will be implied by standard ex post incentive compatibility in our second class of domains, that we call partially knit. That opens the door to identify environments in which good incentives are not at odds with efficiency. In the particular case of private values, our results provide conditions under which individual and strong group strategy-proofness become equivalent. We provide examples of voting, matching, and auction mechanisms to which our theorems apply.
    Keywords: mechanisms, ex post incentive compatibility, ex post group incentive compatibility, strategy-proofness, strong group strategy-proofness, knit domains, respectfulness
    JEL: C78 D71 D78
    Date: 2018–03
  5. By: Jon X. Eguia; Dimitrios Xefteris
    Abstract: A vote-buying mechanism is such that each agent buys a quantity of votes x to cast for an alternative of her choosing, at a cost c(x), and the outcome is determined by the total number of votes cast for each alternative. In the context of binary decisions, we prove that the choice rules that can be implemented by vote-buying mechanisms in large societies are parameterized by a positive parameter rho, which measures the importance of individual preference intensities on the social choice: The limit with rho= 0 is majority rule, rho = 1 is utilitarianism, and rho?8 is the Rawlsian maximin rule. We show that any vote-buying mechanism with limit cost elasticity (1 rho)/rho as x?0 implements the choice rule defined by rho. The utilitarian efficiency of quadratic voting (Lalley and Weyl, 2016) follows as a special case.
    Keywords: implementation; mechanism design; vote-buying; social welfare; utilitarianism; quadratic voting
    JEL: D72 D71 D61
    Date: 2018–03

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