nep-des New Economics Papers
on Economic Design
Issue of 2018‒04‒30
three papers chosen by
Alex Teytelboym
University of Oxford

  1. Approval Voting and Shapley Ranking By Pierre Dehez; Victor Ginsburgh
  2. Market Making via Reinforcement Learning By Thomas Spooner; John Fearnley; Rahul Savani; Andreas Koukorinis
  3. Financial incentives for open source development: the case of Blockchain By Canidio, Andrea

  1. By: Pierre Dehez; Victor Ginsburgh
    Abstract: Approval voting allows voters to list any number of candidates. Their scores are obtained by summing the votes cast in their favor. Fractional voting instead follows the One-person-onevote principle by endowing voters with a single vote that they may freely distribute among candidates. In this paper, we show that to be fair, such a ranking requires a uniform distribution. It corresponds to Shapley ranking that was introduced to rank wines as the Shapley value of a cooperative game with transferable utility. We analyze the properties of these "ranking games" and provide an axiomatic foundation to Shapley ranking. We also analyze Shapley ranking as a social welfare function and compare it to approval ranking.
    Date: 2018–04
  2. By: Thomas Spooner; John Fearnley; Rahul Savani; Andreas Koukorinis
    Abstract: Market making is a fundamental trading problem in which an agent provides liquidity by continually offering to buy and sell a security. The problem is challenging due to inventory risk, the risk of accumulating an unfavourable position and ultimately losing money. In this paper, we develop a high-fidelity simulation of limit order book markets, and use it to design a market making agent using temporal-difference reinforcement learning. We use a linear combination of tile codings as a value function approximator, and design a custom reward function that controls inventory risk. We demonstrate the effectiveness of our approach by showing that our agent outperforms both simple benchmark strategies and a recent online learning approach from the literature.
    Date: 2018–04
  3. By: Canidio, Andrea
    Abstract: Unlike traditional open-source projects, developers of open-source blockchain-based projects can reap large financial rewards thanks to a modern form of seignorage. I study to what extent this novel form of financing generates incentives to innovate. I consider a developer working on an open-source blockchain-based protocol that can be used only in conjunction with a protocol-specific crypto-token. This token is first sold to investors via an auction (the ICO phase) and then traded on a frictionless financial market. I establish that seignorage is effective at providing capital and at generating incentives to develop the protocol. Its effectiveness is however limited by the fact that, in all equilibria of the game, in each post-ICO period there is a positive probability that the developer sells all his tokens and, as a consequence, no development occurs.
    Keywords: Blockchain, decentralized ledger technologies, Initial Coin Offering (ICO), seignorage, innovation, incentives, open source
    JEL: L17 L26 O31
    Date: 2018

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