nep-des New Economics Papers
on Economic Design
Issue of 2018‒05‒21
seven papers chosen by
Alex Teytelboym
University of Oxford

  1. Robust Design in Monotonic Matching Markets : A Case for Firm-Proposing Deferred-Acceptance By Lars EHLERS; Jordi MASSO
  2. Club good mechanisms: from free-riders to citizen-shareholders, from impossibility to characterization By Mackenzie, Andrew; Trudeau, Christian
  3. How Do Sellers Benefit From Buy-It-Now Prices in Ebay Auctions? -- an Experimental Investigation By Grebe, Tim; Ivanova-Stenzel, Radosveta; Kröger, Sabine
  4. A revelation principle for obviously strategy-proof implementation By Mackenzie, Andrew
  5. Self-implementation of social choice correspondences in strong equilibrium By Bezalel Peleg; Hans Peters
  6. Stability of Equilibrium Outcomes under Deferred Acceptance: Acyclicity and Dropping Strategies By Tello Benjamín
  7. Neutralized Competition By Seungjin Han

  1. By: Lars EHLERS; Jordi MASSO
    Abstract: We study two-sided matching markets among workers and firms. Workers seek one position at a firm but firms may employ several workers. In many applications those markets are monotonic: leaving positions unfilled is costly as for instance, for hospitals this means not being able to provide full service to its patients. A huge literature has advocated the use of stable mechanisms for clearinghouses. The interests among workers and firms are polarized among stable mechanisms, most famously the firm-proposing DA and the worker-proposing DA. We show that for the firm-proposing DA ex-ante incentive compatibility and ex-post incentive compatibility are equivalent whereas this is not necessarily true for the worker-proposing DA. The firm-proposing DA turns out to be more robust than the worker-proposing DA under incomplete information when incentives of both sides of the market are important.
    Keywords: Many-to-one matching market, stability, incomplete information, monotonic responsive extensions, robust mechanism design
    JEL: C78 D81 J44
    Date: 2018
  2. By: Mackenzie, Andrew (General Economics 1 (Micro)); Trudeau, Christian (univ windsor, university of windsor)
    Abstract: Consider a community that shares a technology for producing a club good (Buchanan, 1965): any group of agents can “win” for an associated monetary cost. Who should win, and how should production be funded? To address this question, we seek rules (that is, direct mechanisms) where each agent participates voluntarily and is incentivized to report his valuation honestly, and where these reports are used to select winners efficiently without running a deficit. We find that whether or not there are such rules depends on the production technology. If costs are even “somewhat concave,” then there are no such rules: the free-rider problem (Wicksell, 1896; Samuelson, 1954; Green and Laffont, 1979) persists even when agents who do not contribute can be excluded. If costs are symmetric and convex, however, then there are such rules that moreover satisfy no-envy-in-trades (Kolm, 1971; Schmeidler and Vind, 1972). We characterize this class, whose Pareto-worst member is the familiar minimum-price Walrasian rule (Vickrey, 1961; Clarke, 1971; Groves, 1973; Demange, 1982; Leonard, 1983); the other rules do better by treating the agents as equal shareholders in the technology and offering social dividends (Lange, 1936).
    Keywords: Economics, Mathematical economics, Microeconomics
    JEL: D82 D61 H41 D44
    Date: 2018–05–08
  3. By: Grebe, Tim; Ivanova-Stenzel, Radosveta (TU Berlin); Kröger, Sabine (Laval University)
    Abstract: In Buy-It-Now (BIN, hereafter) auctions, sellers can make a \"take-it-or-leave-it\" price offer (BIN price) prior to an auction. We analyse experimentally how eBay sellers set BIN prices and whether they benefit from offering them. Using the real eBay environment in the laboratory, we find that the eBay auction format supports deviations from truthful bidding leading to auction prices substantially below those expected in second-price auctions. Our results reveal that the observed price deviations are not an artefact due to the existence of the BIN price, rather a consequence of the specific features of the eBay-auction format - a mixture between sealed-bid and open second-price auction with a fixed end-time. Moreover, we find that information available on eBay can be used as indicator for the price deviation and that sellers respond strategically to this information. Seller risk aversion does not affect BIN prices and more experienced sellers ask for higher BIN prices. The introduction of BIN prices to eBay auctions has an enhancing effect: the eBay BIN auction is more efficient and generates significantly higher revenue compared to a standard eBay auction without a BIN price.
    Keywords: experience; online markets; ebay; bin price; private value; experiment;
    JEL: C72 C91 D44 D82
    Date: 2018–05–16
  4. By: Mackenzie, Andrew (General Economics 1 (Micro))
    Abstract: We prove that if a stochastic (social choice) rule has an obviously strategy-proof (OSP) implementation (Li, 2016), then it has such an implementation through a randomized round table mechanism, where the administrator randomly selects a game form in which the agents take turns making public announcements about their private information. When restricted to deterministic rules, our result improves upon other recent revelation principles by relaxing all recall requirements and by allowing all game trees compatible with normal forms (Alós-Ferrer and Ritzberger, 2016); we also establish robustness to player randomization using novel solution concepts involving mixed strategies and behavioral strategies. We use our result to provide a justification for ordinal mechanisms in the spirit of Carroll (2017), and we provide a simple characterization of the deterministic rules with OSP-implementations using deterministic round table mechanisms and ordinary strategy-proofness.
    Keywords: economics, mathematical economics, microeconomics
    JEL: D82 D71
    Date: 2018–05–08
  5. By: Bezalel Peleg; Hans Peters
    Abstract: A social choice correspondence is self-implementable in strong equilibrium if it is implementable in strong equilibrium by a social choice function selecting from the correspondence itself as a game form. We characterize all social choice correspondences implementable this way by an anonymous social choice function satisfying no veto power, given that the number of agents is large relative to the number of alternatives. It turns out that these are exactly the social choice correspondences resulting from feasible elimination procedures as introduced in Peleg (1978).
    Date: 2018–04
  6. By: Tello Benjamín
    Abstract: We consider the problem of matching a set of medical students to a set of medical residency positions (hospitals) under the assumption that hospitals' preferences over groups of students are responsive. In this context, we study the preference revelation game induced by the student proposing deferred acceptance mechanism. We show that the acyclicity of the hospitals' preference profile (Romero-Medina and Triossi, 2013a) is a necessary and sufficient condition to ensure that the outcome of every Nash equilibrium in which each hospital plays a dropping strategy is stable.
    Keywords: matching;stability;acyclicity;dropping strategies;Nash equilibria
    JEL: C78
    Date: 2018–04
  7. By: Seungjin Han
    Abstract: This paper proposes a tractable competing mechanism game where each seller simultaneously posts a trading contract that specifies a menu of dominant strategy incentive compatible (DIC) direct mechanisms conditional on an array of messages sent by buyers, and each seller subsequently chooses a DIC direct mechanism from his menu. The complete set of a seller's profits that are supportable in a (symmetric) equilibrium is the interval between the minmax value of his profit with respect to DIC direct mechanisms and his profit in the joint profit maximization. The set of a seller's equilibrium profits is robust to the possibility of a seller's deviation to any arbitrary mechanism in the standard environment with linear utilities and independent private type. Further, with no limited liability or with no capacity constraints, the set of a seller's equilibrium profits coincides with the set of his feasible (i.e., individually rational and incentive compatible) profits. Given a number of buyers, the number of sellers can be endogenized and is equal to the largest number at which a seller's profit in the joint profit maximization is non-negative: As the number of buyers increases, competition is neutralized because only the monopoly terms of trade prevails in the market, whereas the range of a seller's equilibrium profits shrinks to his reservation profit.
    Keywords: competing mechanisms, dominant strategy incentive compatible direct mechanisms, robust equilibrium allocations, market information
    JEL: C72 D82
    Date: 2018–05

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