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on Economic Design |
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Issue of 2018‒07‒09
nine papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Piotr Dworczak (Stanford University); Scott Duke Kominers (Harvard Business School); Mohammad Akbarpour (Stanford University) |
| Abstract: | When macroeconomic tools fail to respond to wealth inequality optimally, regulators can still seek to mitigate inequality within individual markets. A social planner with distributional preferences might distort allocative efficiency to achieve a more desirable split of surplus, for example, by setting higher prices when sellers are poor--effectively, using the market as a redistributive tool. In this paper, we seek to understand how to design goods markets optimally in the presence of inequality. Using a mechanism design approach, we uncover the constrained Pareto frontier by identifying the optimal trade-off between allocative efficiency and redistribution in a setting where the second welfare theorem fails because of private information and participation constraints. We find that competitive equilibrium allocation is not always optimal. Instead, when there is substantial inequality across sides of the market, the optimal design uses a tax-like mechanism, introducing a wedge between the buyer and seller prices, and redistributing the resulting surplus to the poorer side of the market via lump-sum payments. When there is significant within-side inequality, meanwhile, it may be optimal to impose price controls even though doing so induces rationing. |
| Keywords: | optimal mechanism design, redistribution, Inequality, welfare theorems |
| JEL: | D61 D63 D82 H21 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2018-037&r=des |
| By: | Eguia, Jon (Michigan State University, Department of Economics); Xefteris, Dimitrios (University of Cyprus) |
| Abstract: | Simple majority voting does not allow preference intensities to be expressed, and hence fails to implement choice rules that take them into account. A vote-buying mechanism, instead, permits preference intensities to be revealed since each agent can buy any quantity of votes x to cast for an alternative of her choosing at a cost c(x) and the outcome is the most voted alternative. In the context of binary decisions, we characterize the class of choice rules implemented by vote-buying mechanisms. Rules in this class can assign any weight to preference intensities and to the number of supporters for each alternative. |
| Keywords: | implementation; mechanism design; vote-buying; social welfare; utilitarianism; quadratic voting |
| JEL: | D61 D71 D72 |
| Date: | 2018–06–26 |
| URL: | http://d.repec.org/n?u=RePEc:ris:msuecw:2018_001&r=des |
| By: | Koutroumpis, Pantelis; Cave, Martin |
| Abstract: | We study the impact of spectrum auction design on the prices paid by telecommunications operators for two decades across 85 countries. Our empirical strategy combines information about competition in the local market, the level of adoption and a wide range of socio-economic indicators and process specific variables. Using a micro dataset of almost every mobile spectrum auction performed so far—both regional and national—we show that auction design affects final prices paid. Two designs (SMRA with augmented switching and CCA with core pricing) result in auctions with systematically higher normalized returns. Further, we document that spectrum ownership appears to affect prices paid in subsequent auctions. We discuss the mechanisms of cost minimization and foreclosure faced by operators in different regulatory environments. Our findings have implications for policy-makers and regulators. |
| Keywords: | Auction; Digital communications; Spectrum; Market power |
| JEL: | C78 D44 L96 |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:88371&r=des |
| By: | Giovanni Compiani (niversity of California, Berkeley, Haas School of Business); Philip A. Haile (Cowles Foundation, Yale University); Marcelo Sant'Anna (FGV EPGE) |
| Abstract: | An oil lease auction is the classic example motivating a common values model. However, formal testing for common values has been hindered by unobserved auction-level heterogeneity, which is likely to affect both participation in an auction and bidders' willingness to pay. We develop and apply an empirical approach for first-price sealed bid auctions with affiliated values, unobserved heterogeneity, and endogenous bidder entry. The approach also accommodates spatial dependence and sample selection. Following Haile, Hong and Shum (2003), we specify a reduced form for bidder entry outcomes and rely on an instrument for entry. However, we relax their control function requirements and demonstrate that our specification is generated by a fully specified game motivated by our application. We show that important features of the model are nonparametrically identified and propose a semiparametric estimation approach designed to scale well to the moderate sample sizes typically encountered in practice. Our empirical results show that common values, affiliated private information, and unobserved heterogeneity - three distinct phenomena with different implications for policy and empirical work - are all present and important in U.S. offshore oil and gas lease auctions. We find that ignoring unobserved heterogeneity in the empirical model obscures the presence of common values. We also examine the interaction between affiliation, the winner's curse, and the number of bidders in determining the aggressiveness of bidding and seller revenue. |
| Date: | 2018–06 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2137&r=des |
| By: | Damien Challet |
| Abstract: | We report statistical regularities of the opening and closing auctions of French equities, focusing on the diffusive properties of the indicative auction price. Two mechanisms are at play as the auction end time nears: the typical price change magnitude decreases, favoring underdiffusion, while the rate of these events increases, potentially leading to overdiffusion. A third mechanism, caused by the strategic behavior of traders, is needed to produce nearly diffusive prices: waiting to submit buy orders until sell orders have decreased the indicative price and vice-versa. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1807.00573&r=des |
| By: | Shitovitz, Benyamin; Selay, A.; Moreno Ruiz, Diego; Haimanko, Ori; Einy, Ezra; Aiche, A. |
| Abstract: | In Tullock contests in which the common value of the prize is uncertain, information advantages are rewarded: if a player i has better information about the value than some other player j, then the payoff of i is greater or equal to the payoff of j, regardless of the information of the other players. |
| Keywords: | Information Advantage; Common Value; Tullock Contests |
| JEL: | D82 D44 C72 |
| Date: | 2018–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:27107&r=des |
| By: | Daniel Fraiman |
| Abstract: | Consumer markets are quickly growing, creating the need to design new sales mechanisms. Here we introduce a new auction model for selling products in real time and without production limitations. Interested buyers continuously offer bids and if the price is 'right', the bid is accepted. The model exhibits self-organized criticality; it presents a critical price from which a bid is accepted with probability one, and avalanches of sales above this value are observed. We also discuss how to implement the model and consider the impact of information sharing on total income, as well as the impact of setting a base price. |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1805.09763&r=des |
| By: | Takayuki Oishi; Jun Tomioka; Shin Sakaue |
| Abstract: | We propose a job matching model of intermediary labor markets by developing the seminal work of Kelso and Crawford (1982, Econometrica 50:1483-1504). Using this model, we show that for an arbitrary fixed broker-fee rate, the salary-adjustment process converges to a core allocation in intermediary labor markets where high-skilled workers are matched to high-technology firms by the private middleman and low-skilled workers are matched to low-technology firms by the public middleman. This result means that the dual labor market is emerged as a stable outcome of job-matching promoted by the private and public middlemen. Finally, we discuss empirical relevance of our theoretical model by using the data of job placement services in Japan. |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:tcr:wpaper:e124&r=des |
| By: | Rupayan Pal (Indira Gandhi Institute of Development Research); Ada Wossink (University of Manchester); Prasenjit Banerjee (University of Manchester) |
| Abstract: | We examine how endogenous social preferences could affect economic incentive design to encourage biodiversity protection on private land. A 'green' farmer may enjoy esteem from leading by example if there are few farmers who do the right thing. In contrast a farmer without social preferences ('brown' farmer) might merely tick the boxes and is expected to shirk from the desired environmental actions whenever possible unless this affects their reputation. We analyze the design of an incentive scheme that takes into account both types of farmers ('green' or 'brown') under asymmetric information about their true motivation. It follows that under perfect Bayesian equilibrium, the regulator can separate out the farmer types in a two-period setting by monitoring their voluntary conservation actions in response to payment in the first period. The optimal mechanism would be a mixture of a facilitation contract with small monetary incentive but high visibility to keep 'green' farmers interested and a higher monetary-incentive contract to attract the brown farmers. |
| Keywords: | Mechanism Design, Social Norm, Esteem, Motivation Crowding, Signalling, Public goods, Agriculture |
| JEL: | D03 Q57 Q58 D82 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:ind:igiwpp:2018-006&r=des |