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on Economic Design |
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Issue of 2018‒08‒20
eleven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Jonathan Ma (Harvard University); Scott Duke Kominers (Harvard Business School, Entrepreneurial Management Unit) |
| Abstract: | In many-to-many matching with contracts, the way in which contracts are specified can affect the set of stable equilibrium outcomes. Consequently, agents may be incentivized to modify the set of contracts upfront. We consider one simple way in which agents may do so: unilateral bundling, in which a single agent links multiple contracts with the same counterparty together. We show that essentially no stable matching mechanism eliminates incentives for unilateral bundling. Moreover, we find that unilateral bundling can sometimes lead to Pareto improvement?and other times produces market power that makes one agent better off at the expense of others. |
| Keywords: | Matching with contracts; Contract design; Bundling-proofness; Substitutability |
| JEL: | C62 C78 D44 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:hbs:wpaper:19-011&r=des |
| By: | Andersson, Tommy (Department of Economics, Lund University); Csehz, Ágnes (Hungarian Academy of Sciences, Institute of Economics); Ehlers , Lars (Département de sciences économiques, Université de Montréal); Erlanson, Albin (Stockholm School of Economics, Department of Economics) |
| Abstract: | A time bank is a group of individuals and/or organizations in a local community that set up a common platform to trade services among themselves. There are several well-known problems associated with this type of banking, e.g., high overhead costs for record keeping and difficulties to identify feasible trades. This paper demonstrates that these problems can be solved by organizing time banks as a centralized matching market and, more specifically, by organizing trades based on a non-manipulable mechanism that selects an individually rational and time-balanced allocation which maximizes exchanges among the members of the time bank (and those allocations are efficient). Such a mechanism does not exist on the general preference domain but on a smaller yet natural domain where agents classify services as unacceptable and acceptable (and for those services agents have specific upper quotas representing their maximum needs). On the general preference domain, it is demonstrated that the proposed mechanism at least can prevent some groups of agents from manipulating the mechanism without dispensing individual rationality, efficiency, or time-balance. |
| Keywords: | market design; time banking; priority mechanism; non-manipulability |
| JEL: | D82 |
| Date: | 2018–07–21 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:lunewp:2018_019&r=des |
| By: | Tommy ANDERSSON; Lars EHLERS; Lars-Gunnar SVENSSON; Ryan TIERNEY |
| Abstract: | We consider the taxation of exchanges among a set of agents where each agent owns one object. Agents may have different valuations for the objects and they need to pay taxes for exchanges. Using basic properties, we show that if pairwise (or some) exchanges of objects are allowed, then all exchanges (in any possible manner) must be feasible. Furthermore, whenever any agent exchanges his object, he pays the same fixed tax (a lump sum payment which is identical for all agents) independently of which object he consumes. Gale’s top trading cycles algorithm finds the final allocation using the agents’ valuations adjusted with the fixed tax. Our mechanisms are in stark contrast to Clarke-Groves taxation schemes or the max-med schemes proposed by Sprumont (2013). |
| Keywords: | fixed tax, exchanges, top trading |
| JEL: | C71 C78 D63 D71 D78 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:mtl:montec:08-2018&r=des |
| By: | Madhav Raghavan |
| Abstract: | Many private-good allocation rules allow for certain agents - when they change the preferences they report to the rule - to affect the welfare of other agents without affecting their own welfare. Classic examples are the agent-proposing Gale-Shapley rule for matching (Gale and Shapley, 1962) and the Vickrey rule for single-object auctions (Vickrey, 1961). We propose a new methodology, based on the study of this influence that agents might have on each other's welfare, that furthers our understanding of such rules. Moreover, we use structural conditions on influence to explain why some rules satisfy normatively desirable properties such as Pareto-efficiency, stability, weak Maskin monotonicity, non-wastefulness, and weak group-strategy-proofness, while others do not. Illustrative applications include the efficiency-adjusted deferred acceptance mechanism for matching (Kesten, 2010), and generalised absorbing top-trading-cycles rules in object-allocation models (Aziz and Keijzer, 2011). |
| Keywords: | Private-goods allocation; welfare; strategy-proofness; influence; matching; single-object auctions; object-allocation; non-bossiness; Pareto-efficiency; stability |
| JEL: | C78 D71 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:18.05&r=des |
| By: | Matteo Escud\'e; Ludvig Sinander |
| Abstract: | A strictly strategy-proof mechanism is one that asks agents to use strictly dominant strategies. In the canonical one-dimensional mechanism design setting with private values, we show that strict strategy-proofness is equivalent to strict monotonicity plus the envelope formula, echoing a well-known characterisation of (weak) strategy-proofness. A consequence is that strategy-proofness can be made strict by an arbitrarily small modification, so that strictness is 'essentially for free'. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1807.11864&r=des |
| By: | Weiye Cheny (Graduate School of Economics, Osaka University) |
| Abstract: | This paper investigates the optimal ex-ante price mechanism design of selling a single indivisible object in a market that comprises one public risky buyer and one regular risky buyer under unlimited or limited liability where resale is allowed. First, we propose an endogenous liquidation rule requiring that the public buyer acquires the object in the liquidation stage. Next, we design an optimal bankruptcy transfer to prevent the buyer's strategic default. On the basis of this liquidation rule, the optimal ex-ante price mechanism is designed to achieve the seller's upper bound revenue under unlimited and limited liability when resale cannot be prohibited prior to the liquidation stage. Comparing the two mechanisms, the results illustrate that the effect on the seller's behavior and that revenue over the liability and information change in each case. In other words, (i) when faced with limited liability buyers, the regular buyer will obtain the object in the initial market, whereas they will become the loser under the unlimited liability case; (ii) the seller's expected revenue under unlimited liability is weakly higher than that under limited liability; and (iii) when faced with the risky buyer, the seller prefers the buyer's resale behavior and is averse to the speculator only under the limited liability case. |
| Keywords: | Mechanism design Bankruptcy Endogenous bankruptcy recovery Resale |
| JEL: | D82 G33 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1824&r=des |
| By: | Matías Núñez (Universitè Paris-Dauphine, PSL Research University, CNRS, Lamsade); Carlos Pimienta (School of Economics, UNSW Business School); Dimitrios Xefteris (University of Cyprus, Department of Economics) |
| Abstract: | In the single-peaked domain, the median rules (Moulin, 1980) are of special interest. They are, essentially, the unique strategy-proof rules as well as the unique Nash implementable ones under complete information. We show that, under mild assumptions on admissible priors, they are also Bayes-Nash implementable by the means of ``detail-free'' mechanisms. That is, mechanisms that do not rely on the mechanism designer having detailed information about the priors that the agents hold. Furthermore, detail-free implementation of the median rules does not clash with truthful behavior. The provided mechanism is such that, in every equilibrium, all agents reveal their true peak with probability one. |
| Keywords: | Nash Implementation, Bayesian Implementation, Robust Implementation, Detail-free, Median rule, Strategy-proofness, Single-Peaked Preferences, Condorcet Winner. |
| JEL: | C9 D71 D78 H41 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:swe:wpaper:2018-11&r=des |
| By: | Paul Pezanis-Christou (School of Economics, University of Adelaide); Andrés Romeu (Fundamentos del Analisis Economico, Universidad de Murcia) |
| Abstract: | We use laboratory data from first-price auctions and manipulate the quantity and the quality of information available to assess the robustness of structural inferences (i.e., estimates, revenue predictions and optimal reserve price recommendations). We show that the latter are sensitive to the quantity of information when quality is low such as in field settings, and that improving quality in such settings dampens the effect of quantity and unveils out-of-equilibrium bidding patterns. Yet, a counterfactual analysis of the seller's revenues and optimal reserve prices indicates that behavior is best explained by the usual Nash equilibrium model with either risk aversion or a power form of probability misperception. When the information available is of the highest quality, as in laboratory settings, this model is typically rejected because of a nonlinear bidding behavior. We consider two rationales for such behavior and find that they leave revenue predictions and optimal price recommendations hardly affected. |
| Keywords: | first-price sealed bid auctions, structural econometrics of auctions, constant relative risk aversion, probability misperception, expected revenue predictions, optimal reserve prices, experiments |
| JEL: | C9 D44 L1 |
| Date: | 2018–05 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2018-08&r=des |
| By: | Croonenbroeck, Carsten; Odening, Martin; Hüttel, Silke |
| Abstract: | Within this paper, we aim to investigate asymmetries among bidders in land auctions that may entail non-competitive prices. Using representative data for Eastern Germany including winning bids, bidder characteristics, and land amenities, we pursue a structural approach to derive distributions of latent land values for different bidder groups. By applying nonparametric techniques, we cannot find evidence for asymmetric bidder structures while differentiating between legal entities, tenancy status, and nationality of bidders. Our findings challenge the hypothesis that land privatization via auctions discriminates against certain buyer groups—an argument that is often used to justify stricter regulation of agricultural land markets. |
| Keywords: | Agricultural and Food Policy, Agricultural Finance, Land Economics/Use |
| Date: | 2018–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:ags:bokufo:275486&r=des |
| By: | Karni, Edi; Safra, Zvi |
| Keywords: | Financial Economics |
| URL: | http://d.repec.org/n?u=RePEc:ags:isfiwp:275437&r=des |
| By: | Ying Liu (University of Lausanne and Swiss Finance Institute); Sebastian Vogel (Ecole Polytechnique Fédérale de Lausanne); Yuan Zhang (Ecole Polytechnique Fédérale de Lausanne) |
| Abstract: | We model a two-tiered market structure in which an investor can trade an asset on a trading platform with a set of dealers who in turn have access to an interdealer market. The investor's order is informative about the asset's payoff and dealers who were contacted by the investor use this information in the interdealer market. Increasing the number of contacted dealers lowers markups through competition but increases the dealers' costs of providing the asset through information leakage. We then compare a centralized market in which investors can trade among themselves in a central limit order book to a market in which investors have to use the electronic platform to trade the asset. With imperfect competition among dealers, investor welfare is higher in the centralized market if private values are strongly dispersed or if the mass of investors is large. |
| Keywords: | OTC markets, RFQ, market design, electronic trading, dealer intermediation |
| JEL: | D44 D82 G12 G14 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1819&r=des |