nep-des New Economics Papers
on Economic Design
Issue of 2018‒05‒14
four papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Empirical Equilibrium By Rodrigo A. Velez; Alexander L. Brown
  2. It's not always best to be first By Sela, Aner
  3. Buyer Uncdertainty about Seller Capacity: Causes, Consequences, and a Partial Solution By John Horton
  4. Networks and Trade By Bernard, Andrew B.; Moxnes, Andreas

  1. By: Rodrigo A. Velez; Alexander L. Brown
    Abstract: We introduce empirical equilibrium, the prediction in a game that selects the Nash equilibria that can be approximated by a sequence of payoff-monotone distributions, a well-documented proxy for empirically plausible behavior. Then, we reevaluate implementation theory based on this equilibrium concept. We show that in a partnership dissolution environment with complete information, two popular auctions that are essentially equivalent for the Nash equilibrium prediction, can be expected to differ in fundamental ways when they are operated. Besides the direct policy implications, two general consequences follow. First, a mechanism designer may not be constrained by typical invariance properties. Second, a mechanism designer who does not account for the empirical plausibility of equilibria may inadvertently design implicitly biased mechanisms.
    Date: 2018–04
  2. By: Sela, Aner
    Abstract: We study a model with n agents, each of whom has both a linear reward function that increases in the agent's effort and an effort constraint. However, since the effort (output) of the players has a negative effect on society the designer imposes a punishment such that the agent with the highest effort who caused the greatest damage is punished. We analyze the equilibrium of this model with either symmetric or asymmetric agents. At all the equilibrium points, all the agents are active and all have positive expected payoffs. We characterize the properties of the agents' equilibrium strategies and compare them to the well-known equilibrium strategies of the all-pay auction in which the agent with the highest effort wins a prize.
    Keywords: Contests; winner's curse
    Date: 2018–04
  3. By: John Horton
    Abstract: Employers in an online labor market often pursue workers with little capacity to take on more work. The pursuit of low-capacity workers is consequential, as these workers are more likely to reject employer inquires, causing a reduction in the probability a job opening is ultimately filled. In an attempt to shift more employer attention to workers with greater capacity, the market-designing platform introduced a new signaling feature into the market. It was effective, in that when a worker signaled having high capacity, he or she received more invitations from employers, rejected a smaller fraction of those invitations, quoted a lower price to do the work, and was more likely to be hired. A back-of-the-envelope calculation suggests the signaling feature alone could increase market surplus by as much as 6%, both by increasing the number of matches formed and by helping to allocate projects to workers with lower costs.
    Keywords: labor economics, market design, digitization
    Date: 2018
  4. By: Bernard, Andrew B.; Moxnes, Andreas
    Abstract: Trade occurs between firms both across borders and within countries, and the vast majority of trade transactions includes at least one large firm with many trading partners. This paper reviews the literature on firm-to-firm connections in trade. A growing body of evidence coming from domestic and international transaction data has established empirical regularities which have inspired the development of new theories emphasizing firm heterogeneity among both buyers and suppliers in production networks. Theoretical work has considered both static and dynamic matching environments in a framework of many-to-many matching. The literature on trade and production networks is at an early stage, and there are a large number of unanswered empirical and theoretical questions.
    Keywords: International Trade; offshoring; production networks; productivity
    JEL: F10 F12 F14 L11 L21
    Date: 2018–04

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