nep-des New Economics Papers
on Economic Design
Issue of 2018‒05‒07
ten papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Full surplus extraction in mechanism design with information disclosure By Daniel Kraehmer;
  2. Valuation compressions in VCG-based combinatorial auctions By Dütting, Paul; Henzinger, Monika; Starnberger, Martin
  3. The Performance of Core-Selecting Auctions: An Experiment By Heczko, Alexander; Kittsteiner, Thomas; Ott, Marion
  4. Information Nudges and Self Control By Mariotti, Thomas; Schweizer, Nikolaus; Szech, Nora
  5. Stability and fairness in the job scheduling problem By Eric Bahel; Christian Trudeau
  6. Deterministic versus Stochastic Contracts in a Dynamic Principal-Agent Model By Mettral, Thomas
  7. Leveling the Playing Field for High School Choice: Results from a Field Experiment of Informational Interventions By Sean P. Corcoran; Jennifer L. Jennings; Sarah R. Cohodes; Carolyn Sattin-Bajaj
  8. Instrument-Based vs. Target-Based Rules By Halac, Marina; Yared, Pierre
  9. Toward an Ethical Experiment By Yusuke Narita
  10. Can there be a Market for Cheap-Talk Information? An Experimental Investigation By Antonio Cabrales; Francesco Feri; Piero Gottardi; Miguel A. Meléndez-Jiménez

  1. By: Daniel Kraehmer;
    Abstract: I study mechanism design settings with quasi-linear utility where the principal can provide agents with additional private information about their valuations beyond the private information they hold at the outset. I demonstrate that the principal can design information and a mechanism so as to fully extract the complete information first-best surplus if agents’ ex ante information only affects their beliefs about, yet not their valuations. Otherwise, the result holds if each agent’s initial private beliefs satisfy a spanning condition.
    Keywords: information design, mechanism design, quasi-linear utility, rent extraction
    JEL: D82 H57
    Date: 2018–04
  2. By: Dütting, Paul; Henzinger, Monika; Starnberger, Martin
    Abstract: The focus of classic mechanism design has been on truthful direct-revelation mechanisms. In the context of combinatorial auctions the truthful direct-revelation mechanism that maximizes social welfare is the VCG mechanism. For many valuation spaces computing the allocation and payments of the VCG mechanism, however, is a computationally hard problem. We thus study the performance of the VCG mechanism when bidders are forced to choose bids from a subspace of the valuation space for which the VCG outcome can be computed efficiently. We prove improved upper bounds on the welfare loss for restrictions to additive bids and upper and lower bounds for restrictions to non-additive bids. These bounds show that increased expressiveness can give rise to additional equilibria of poorer efficiency.
    Keywords: Algorithms; Economics; Theory; Simplified mechanisms; Combinatorial auctions with item bidding; Price of anarchy
    JEL: J1
    Date: 2018–01–23
  3. By: Heczko, Alexander; Kittsteiner, Thomas; Ott, Marion
    Abstract: Combinatorial auctions, in particular core-selecting auctions, have increasingly attracted the attention of academics and practitioners. We experimentally analyze core-selecting auctions under incomplete information and find that they perform better than the Vickrey auction. The proportions of efficient allocations are similar in both types of auctions, but the proportions of stable (core) allocations and the revenue are higher in the core-selecting auctions. This is in particular true for an independent private values setting in which theory does not predict this better performance of the core-selecting auction. We trace the causes of the performance differences back to patterns in bids. The core-selecting auctions provide incentives for overbidding the own valuation and - under certain conditions - also for bid-shading, which can hamper performance. In the experiment, bidders react in the predicted direction to these incentives, though less pronouncedly than predicted.
    Keywords: Combinatorial auction,VCG mechanism,core-selecting auction,experiment
    JEL: D44 C72 D82 C92
    Date: 2018
  4. By: Mariotti, Thomas; Schweizer, Nikolaus; Szech, Nora
    Abstract: A present-biased consumer has to make sequential consumption decisions under no commitment. Consumption is enjoyable in the short term but potentially harmful in the long term. The likelihood of harmful future consequences hinges on the consumer's type. While the distribution of types is common knowledge, the consumer's individual type is initially unknown. We study information design in this setting, varying how much a consumer learns about his type via an information nudge. We first consider a mechanism designer who is benevolent in the sense that his interests are aligned with the consumer's. We find that there always exists an optimal incentive-compatible persuasion mechanism that is of cutoff type, either recommending consumption or abstinence, and we provide a full characterization of this information nudge for an arbitrary distribution of types. Under a stronger bias for the present, the target group of the nudge who receives a credible signal to abstain must be tightened. We compare this information nudge with the optimal information structure if expected consumption should be minimized, and if it should be maximized. The first may be the goal of a health authority, whereas the latter may be preferred by a lobbyist.
    Keywords: Information Design; Information Nudge; Present-Biased Preferences; SelfControl
    JEL: C73 D82
    Date: 2018–04
  5. By: Eric Bahel (Department of Economics, Virginia Polytechnic Institute and State University); Christian Trudeau (Department of Economics, University of Windsor)
    Abstract: The job scheduling problem is a classic operational research problem in which agents have jobs to be executed by machines in given time slots, with each machine being able to process only one job at a time. We study this problem using cooperative game theory, focusing on how to divide the minimum cost (of executing all jobs) between the agents. First, we characterize the set of stable allocations, which all charge only users whose jobs are executed in peak-demand time periods. Second, using properties designed to avoid strategic mergers or splits of the jobs, we offer axiomatizations for two remarkable stable allocation rules. Third, observing that all stable rules fail Unanimity Lower Bound (ULB), a property requiring that everybody pay an equal share of the first machine (since it is needed by all), we study and axiomatize the Shapley value, which satisfies ULB. A compromise is then proposed between Stability and ULB.
    Keywords: game theory; cost sharing; job scheduling; stability; unanimity lower bound; Shapley value.
    JEL: C71 D63
    Date: 2018–05
  6. By: Mettral, Thomas (HU Berlin)
    Abstract: I show that deterministic dynamic contracts between a principal and an agent are always at least as profitable to the principal as stochastic ones, if the so-called first-order approach in dynamic mechanism design is satisfied. The principal commits, while the agent\'s type evolution follows a Markov process. My results demonstrate, even when allowing for potential correlation of stochastic contracts across periods that the usual restriction in the literature to deterministic contracts is admissible, as long as the first-order approach is valid.
    Keywords: contract theory; principal-agent theory; dynamic contracting;
    JEL: D82 D86
    Date: 2018–04–24
  7. By: Sean P. Corcoran; Jennifer L. Jennings; Sarah R. Cohodes; Carolyn Sattin-Bajaj
    Abstract: We conducted a field experiment in 165 high-poverty New York City middle schools to help students navigate a complex high school choice process and access higher-performing schools. Students in treatment schools were given a customized one-page list of proximate high schools with a graduation rate at or above the city median (70%). Some also received a supplemental list highlighting academically non-selective schools or high schools organized by academic interest area. The interventions changed student application behavior in ways that led to more matches to higher-performing schools. While treatment students did not apply to higher graduation rate schools, they applied to schools where their odds of admission were higher, were more likely to receive their first-choice high school, and were less likely to match to a school with a low graduation rate. Our findings also suggest that informational interventions may not reduce inequality, since both disadvantaged and comparatively advantaged students used our materials, and in some cases the latter benefited more from them by applying and matching to more schools on our lists. Students in non-English speaking households, who were particularly responsive to the intervention and were much less likely to match to a low-performing school, were one notable exception to this pattern.
    JEL: D83 I21 I24
    Date: 2018–03
  8. By: Halac, Marina; Yared, Pierre
    Abstract: We develop a simple delegation model to study rules based on instruments vs. targets. A principal faces a better informed but biased agent and relies on joint punishments as incentives. Instrument-based rules condition incentives on the agent's observable action; target-based rules condition incentives on outcomes that depend on the agent's action and private information. In each class, an optimal rule takes a threshold form and imposes the worst punishment upon violation. Target-based rules dominate instrument-based rules if and only if the agent's information is sufficiently precise. An optimal hybrid rule relaxes the instrument threshold whenever the target threshold is satisfied.
    Keywords: delegation; mechanism design; Policy Rules; private information
    JEL: D02 D82 E58 E61
    Date: 2018–04
  9. By: Yusuke Narita (Cowles Foundation, Yale University)
    Abstract: Randomized Controlled Trials (RCTs) enroll hundreds of millions of subjects and involve many human lives. To improve subjects’ welfare, I propose an alternative design of RCTs that I call Experiment-as-Market (EXAM). EXAM Pareto optimally randomly assigns each treatment to subjects predicted to experience better treatment effects or to subjects with stronger preferences for the treatment. EXAM is also asymptotically incentive compatible for preference elicitation. Finally, EXAM unbiasedly estimates any causal effect estimable with standard RCTs. I quantify the welfare, incentive, and information properties by applying EXAM to a water cleaning experiment in Kenya (Kremer et al., 2011). Compared to standard RCTs, EXAM substantially improves subjects’ predicted well- being while reaching similar treatment effect estimates with similar precision.
    Keywords: Research Ethics, Clinical Trial, Social Experiment, A/B Test, Market Design, Causal Inference, Development Economics, Spring Protection, Discrete Choice
    Date: 2018–04
  10. By: Antonio Cabrales; Francesco Feri; Piero Gottardi; Miguel A. Meléndez-Jiménez
    Abstract: This paper reports on experiments testing the viability of markets for cheap talk information. We find that the poor quality of the information transmitted leads to a collapse of information markets. The reasons for this are surprising given the previous experimental results on cheap-talk games. Our subjects provide low-quality information even when doing so does not increase their monetary payoff.
    Keywords: experiment, cheap talk, auction, information acquisition, information sale
    JEL: D83 C72 G14
    Date: 2018

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