nep-des New Economics Papers
on Economic Design
Issue of 2018‒06‒18
ten papers chosen by
Alex Teytelboym
University of Oxford

  1. Carpooling and the Economics of Self-Driving Cars By Ostrovsky, Michael; Schwarz, Michael
  2. Structural Estimation of a Model of School Choices: the Boston Mechanism vs. Its Alternatives By Caterina Calsamglia; Chao Fu; Maia Güell
  3. Price Customization and Targeting in Platform Markets By Gomes, Renato; Pavan, Alessandro
  4. Augmenting Markets with Mechanisms By Duffie, Darrell; Antill, Samuel
  5. Judgements aggregation by a sequential majority procedure By Bezalel Peleg; Shmuel Zamir
  6. Push or Pull? Performance-Pay, Incentives, and Information Search By David Rietzke; Yu Chen
  7. Happy family of stable marriages By Gershon Wolansky
  8. Externalities as Arbitrage By Hebert, Benjamin
  9. On the design and implementation of environmental conservation mechanisms : Evidence from field experiments By Kitesa, Rahel
  10. Effects of government spending on employment: Evidence from winners and runners-up in procurement auctions By Gugler, Klaus; Weichselbaumer, Michael; Zulehner, Christine

  1. By: Ostrovsky, Michael (Stanford University); Schwarz, Michael (Microsoft)
    Abstract: We study the interplay between autonomous transportation, carpooling, and road pricing. We discuss how improvements in these technologies, and interactions among them, will affect transportation markets. Our main results show how to achieve socially efficient outcomes in such markets, taking into account the costs of driving, road capacity, and commuter preferences. An important component of the efficient outcome is the socially optimal matching of carpooling riders. Our approach shows how to set road prices and how to share the costs of driving and tolls among carpooling riders in a way that implements the efficient outcome.
    Date: 2018–02
  2. By: Caterina Calsamglia; Chao Fu; Maia Güell
    Abstract: We model household choice of schools under the Boston mechanism (BM) and develop a new method, applicable to a broad class of mechanisms, to fully solve the choice problem even if it is infeasible via the traditional method. We estimate the joint distribution of household preferences and sophistication types using administrative data from Barcelona. Counterfactual policy analyses show that a change from BM to the Deferred Acceptance mechanism would decrease average welfare by 1,020 euros, while a change to the top trading cycles mechanism would increase average welfare by 460 euros.
    JEL: I0 J0
    Date: 2018–05
  3. By: Gomes, Renato; Pavan, Alessandro
    Abstract: Recent technologies enable matching intermediaries to engage in unprecedented levels of targeting, whereby matches finely depend on the agents' characteristics, but also favor customized (i.e., match-specific) pricing. Yet, novel regulations on the transfer of personal data, as well as a renewed trend towards market decentralization, are expected to hinder price customization and favor uniform pricing (whereby the price of a match charged to agents on a given side of a market is invariant in the agents' observable characteristics). To assess the impact of these developments, we build a matching model in which agents' preferences are both vertically and horizontally differentiated. Mirroring current practices, we show how, absent regulations, platforms maximize profits through price customization, link the latter to structural elasticities, and assess the targeting effects of market power. Perhaps surprisingly, we show that uniform pricing may either increase or decrease targeting levels and consumer welfare, depending on testable properties of demand. The analysis has implications for online shopping, ad-exchanges, and media platforms.
    Keywords: asymmetric information; incentives; Many-to-many matching; platforms; price discrimination
    JEL: D82
    Date: 2018–05
  4. By: Duffie, Darrell (Stanford University); Antill, Samuel (?)
    Abstract: We compute optimal mechanism designs for each of a sequence of size-discovery sessions, at which traders submit reports of their excess inventories of an asset to a session operator, which allocates transfers of cash and the asset. The mechanism design induces truthful reports of desired trades and perfectly reallocates the asset across traders. Between sessions, in a dynamic auction market, traders strategically lower their price impacts by shading their bids, causing socially costly delays in rebalancing the asset across traders. As the expected frequency of size-discovery sessions is increased, market depth is further lowered, offsetting the efficiency gains of the size-discovery sessions. Adding size-discovery sessions to a double-auction market has no social value, beyond that of an initializing session. If the mechanism design relies on the double-auction market for information from prices, bidding incentives are further weakened, strictly reducing overall market efficiency.
    Date: 2017–12
  5. By: Bezalel Peleg; Shmuel Zamir
    Abstract: We consider a standard model of judgment aggregation as presented, for example, in Dietrich (2015). For this model we introduce a sequential majority procedure (SMP) which uses the majority rule as much as possible. The ordering of the issues is assumed to be exogenous. The definition of SMP is given in Section 2. In Section 4 we construct an intuitive relevance relation for our model, closely related to conditional entailment, for our model. While in Dietrich (2015), the relevance relation is given exogenously as part of the model, we insist that the relevance relation be derived from the agenda. We prove that SMP has the property of independence of irrelevant issues (III) with respect to (the transitive closure of) our relevance relation. As III is weaker than the property of proposition-wise independence (PI) we do not run into impossibility results as does List (2004) who incorporates PI in some parts of his analysis. We proceed to characterize SMP by anonymity, restricted monotonicity, limited neutrality, restricted agenda property, and independence of past deliberations (see Section 3 for the precise details). SMP inherits the first three axioms from the Majority Rule. The axiom of restricted agenda property guarantees sequentiality. The most important axiom, independence of past deliberations (IPD), says that the choice at time (t+1) depends only on the choices in dates 1, ..., t and the judgments at (t +1) (and not on the judgments in dates 1, ..., t) . Also, we use this occasion to point out that Roberts (1991) characterization of choice by plurality voting may be adapted to our model.
    Date: 2018–06
  6. By: David Rietzke (Lancaster University); Yu Chen (University of Graz, Austria)
    Abstract: We study a principal-agent model wherein the agent is better informed of the prospects of the project, and the project requires both an observable and unobservable input. We characterize the optimal contracts, and explore the trade-offs between high and low-powered incentive schemes. We discuss the implications for push and pull programs used to encourage R&D activity, but our results are relevant in other contexts.
    Keywords: Pay for Performance; Moral Hazard; Adverse Selection; Observable Action; Principal-Agent Problem
    JEL: D82 D86 O31
    Date: 2018–05
  7. By: Gershon Wolansky
    Abstract: Some aspects of the problem of stable marriage are discussed. There are two distinguished marriage plans: the fully transferable case, where money can be transferred between the participants, and the fully non transferable case where each participant has its own rigid preference list regarding the other gender. We continue to discuss intermediate partial transferable cases. Partial transferable plans can be approached as either special cases of cooperative games using the notion of a core, or as a generalization of the cyclical monotonicity property of the fully transferable case (fake promises). We shall introduced these two approaches, and prove the existence of stable marriage for the fully transferable and non-transferable plans.
    Date: 2018–05
  8. By: Hebert, Benjamin (Stanford University)
    Abstract: Regulations on financial intermediaries can create apparent arbitrage opportunities. Intermediaries are unable to fully exploit these opportunities due to regulation, and other agents are unable to exploit them at all due to limited participation. Does the existence of arbitrage opportunities imply that regulations are sub-optimal? No. I develop of general equilibrium model, with financial intermediaries and limited participation by other agents, in which a constrained-efficient allocation can be implemented with asset prices featuring arbitrage opportunities. Absent regulation, there would be no arbitrage; however, allocations would be constrained-inefficient, due to pecuniary externalities and limited market participation. Optimal policy creates arbitrage opportunities whose pattern across states of the world reflects these externalities. From financial data alone, we can construct perceived externalities that would rationalize the pattern of arbitrage observed in the data. By examining these perceived externalities, and comparing them to the stated goals of regulators, as embodied in the scenarios of the stress tests, we can ask whether regulations are having their intended effect. The answer, in recent data, is no.
    Date: 2017–12
  9. By: Kitesa, Rahel (Tilburg University, School of Economics and Management)
    Abstract: This doctoral dissertation consists of three chapters on the design and implementation of environmental conservation mechanisms using economic experiments. The first chapter examines how variations in information and context affect the outcomes of valuation using field experiment. The chapter shows the evidence that people’s contributions increase significantly and substantially if attention is drawn to their own responsibility in the deforestation and desertification process, suggesting, the ‘responsibility effect’ is important in the valuation-an extension of the previous examination on the role of behavior in valuation. The second chapter revisits Payment for Ecosystem Services (PES) and the determination of the optimal price by comparing the performance of Uniform Price Auctions (UPA) and Take-it-or-leave (TILI) mechanism. Using both laboratory and field experiments it is found that given the same level of price, the sign-up rate to a PES project differs between the two mechanisms. More subjects are willing to sign-up in TILI than was predicted in UPA. The findings also suggest that this disparity can be explained by the hypothesis of more deliberate decision making in UPA than TILI. The third chapter examines how trust and trustworthiness evolve in the community (engaged in public good provision) to predict the sustainability of common good conservation. The chapter deals with trust and trustworthiness, as important social norms, between the cooperators and non- cooperator in common good provision. The findings of the chapter support the hypothesis that higher trust is placed on the cooperators than non-cooperators with payoff consequences-contrary to standard economic prediction. The cooperator type receives more money, but sends and returns less to non-cooperators which allow the cooperator type to receive a consistently higher payoff- which was predicted by the Ostrom’s theory of collective actions.
    Date: 2018
  10. By: Gugler, Klaus; Weichselbaumer, Michael; Zulehner, Christine
    Abstract: To estimate demand for labor, we use a combination of detailed employment data and the outcomes of procurement auctions, and compare the employment of the winner of an auction with the employment of the second ranked firm (i.e. the runner-up firm). Assuming similar ex-ante winning probabilities for both firms, we may view winning an auction as an exogenous shock to a firm's production and its demand for labor. We utilize daily data from almost 900 construction firms and about 3,000 auctions in Austria in the time period 2006 until 2009. Our main results show that the winning firm significantly increases labor demand in the weeks following an auction but only in the years before the recent economic crisis. It employs about 80 workers more after the auction than the runner-up firm. Most of the adjustment takes place within one month after the demand shock. Winners predominantly fire fewer workers after winning than runner-up firms. In the crisis, however, firms do not employ more workers than their competitors after winning an auction. We discuss explanations like labor hoarding and productivity improvements induced by the crisis as well discuss implications for fiscal and stimulus policy in the crisis.
    Keywords: labor demand,labor hoarding,construction procurement,first-price auctions,recent economic crisis,regression discontinuity design
    JEL: D44 L10 L13
    Date: 2018

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