nep-des New Economics Papers
on Economic Design
Issue of 2018‒06‒11
seven papers chosen by
Alex Teytelboym
University of Oxford

  1. First-Price Auctions with General Information Structures: A Short Introduction By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  2. Revenue Guarantee Equivalence By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  3. Efficient and Incentive-Compatible Liver Exchange By Haluk Ergin; Tayfun Sönmez; M. Utku Ünver
  4. Stability and Universal Implementability of the Price Mechanism By Kohzo Shiraishi; Ken Urai; Hiromi Murakami
  5. Persuasion Against Self-Control Problems By von Wangenheim, Jonas
  6. Sweet Lemons: Mitigating Collusion in Organizations By Pollrich, Martin; von Negenborn, Colin
  7. Inefficiency in Private Value Bargaining with Naive Players: An Experimental Study By Alex Possajennikov; Rene Saran

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: In a recent paper, [Bergemann et al. 2017a], we derive results about equilibrium behavior in the ?rst-price auction that hold across all common-prior information structures. The purpose of this letter is to give an informal introduction into the results. At the end we o?er a brief discussion of related work.
    Keywords: First-price auction, Information structure, Bayes correlated equilibrium, Private values, Interdependent values, Common values, Revenue, Surplus, Welfare bounds, Reserve price
    Date: 2018–05
  2. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We revisit the revenue comparison of standard auction formats, including first-price, second-price, and English auctions. We rank auctions according to their revenue guarantees, i.e., the greatest lower bound of revenue across all informational environments, where we hold fixed the distribution of bidders' values. We conclude that if we restrict attention to the symmetric affiliated models of Milgrom and Weber (1982) and monotonic pure-strategy equilibria, first-price, second-price, and English auctions all have the same revenue guarantee, which is equal to that of the first-price auction as characterized by Bergemann, Brooks, and Morris (2017a). If we consider all equilibria or if we allow more general models of information, then first-price auctions have a greater revenue guarantee than all other auctions considered.
    Keywords: Revenue guarantee, Common values, Affiliated values, Revenue equivalence, Revenue ranking, First-price auction, Second-price auction, English auction
    JEL: C72 D44 D82 D83
    Date: 2018–05
  3. By: Haluk Ergin (Department of Economics, University of California at Berkeley); Tayfun Sönmez (Boston College); M. Utku Ünver (Boston College)
    Abstract: Liver exchange has been practiced in small numbers, mainly to overcome blood-type incom- patibility between patients and their living donors. A donor can donate either his smaller left lobe or the larger right lobe, although the former option is safer. Despite its elevated risk, right-lobe transplantation is often utilized due to size-compatibility requirement with the patient. We model liver exchange as a market-design problem, focusing on logistically simpler two-way exchanges. First, with two patient-donor sizes, we introduce an algorithm when only the safer left-lobe transplantation is feasible. We then introduce an individually rational, Pareto-efficient, and incentive-compatible mechanism that truthfully elicits the right- lobe-donation willingness of donors, and finally extend these results to a general model with any number of patient/donor sizes. The generalization requires new technical tools regarding bilateral exchanges under partial-order-induced preferences. Through simulations we show that not only liver exchange can increase the number of transplants by more than 30%, it can also increase the share of the safer left-lobe transplants.
    Keywords: Market design, liver exchange, matching, incentive compatibility, efficiency
    JEL: C78
    Date: 2018–05–15
  4. By: Kohzo Shiraishi (Faculty of Economics, Kobegakuin University); Ken Urai (Graduate School of Economics, Osaka University); Hiromi Murakami (School of Business Administration, Kwansei Gakuin University)
    Abstract: An axiomatic characterization of price or market mechanisms is one of the most important problems in general equilibrium theory. Based on the general equilibrium framework and the characterization of the price mechanism, this paper provides a new perspective or a uni ed viewpoint on some axioms in social choice theory and a setting for the informational efficiency problem of the allocation mechanisms. Our arguments focus on a contemporary reconsideration and generalization of the category theoretic method in Sonnenschein (1974) and the replica stability arguments in social choice theory like Thom- son (1988) and Nagahisa (1994). Sonnenschein's axiomatic characterization of the price mechanism is extended to an economy-dependent welfare form of a universal implementability theorem. The frame- work provides new methods and general settings in treating mechanisms with messages or information, and many social choice axioms. Our result also has an important economic interpretation that the price mechanism can be characterized as a universal rule that is stable in assuring sufficiently high utility levels for each member of a small economy relative to its large expansions.
    Keywords: Price Mechanism, Axiomatic Characterization, Category Theory, Informational Effi- ciency, Universal Implementability, Message Mechanism
    JEL: C60 D50 D71
    Date: 2018–05
  5. By: von Wangenheim, Jonas (Humboldt University Berlin)
    Abstract: I derive a social planner\'s optimal information design in an environment with quasi-hyperbolic discounting consumers without commitment. Consumption induces instantaneous utility, but unknown delayed cost. Consumers may or may not acquire additional costless information on the cost parameter. The planner\'s optimal signal can be interpreted as an incentive compatible consumption recommendation whenever the cost parameter is below some cut-off. Welfare strictly exceeds the one under full information. I characterize distributional conditions under which welfare attains first best.
    Keywords: bayesian persuasion; present bias; hyperbolic discounting; rational inattention;
    JEL: D01 D18 D62 D82
    Date: 2018–05–29
  6. By: Pollrich, Martin (University of Bonn); von Negenborn, Colin (HU Berlin)
    Abstract: This paper shows that the possibility of collusion between an agent and a supervisor imposes no restrictions on the set of implementable social choice functions (SCF) and associated payoff vectors. Any SCF and any payoff profile that are implementable if the supervisor′s information was public is also implementable when this information is private and collusion is possible. To implement a given SCF we propose a one-sided mechanism that endogenously creates private information for the supervisor vis-à-vis the agent, and conditions both players′ payoffs on this endogenous information. We show that in such a mechanism all collusive side-bargaining fails, similar to the trade failure in Akerlof′s (1970) car market and in models of bilateral trade.
    Keywords: mechanism design; collusion; asymmetric information; correlation;
    JEL: D82 D83 L51
    Date: 2018–06–07
  7. By: Alex Possajennikov (University of Nottingham); Rene Saran (University of Cincinnati)
    Abstract: The paper reports on an experiment on two-player double-auction bargaining with private values. We consider a setting with discrete two-point overlapping distributions of traders' valuations, in which there exists a fully efficient equilibrium. We show that if there are traders that behave naively, i.e., set bid or ask equal to their valuation, then there is no equilibrium achieving full efficiency. In the experiment, we vary the proportion of naive traders by introducing computerized players. We find that full efficiency is not achieved in the experiment with or without naive traders, and efficiency is not lower in the presence of naive traders. Subjects mostly set bid/ask prices strategically but the extent of strategic behavior is not larger in the presence of naive players. We can explain these results by a learning model of noisy strategy adjustment. We also find that framing the double auction as a direct mechanism leads to more naive behavior by experiment participants, and that allowing face-to-face pre-play communication increases efficiency although still not to the full level.
    Keywords: bargaining with private values, double auction, efficiency, honesty
    Date: 2018–03

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