nep-des New Economics Papers
on Economic Design
Issue of 2018‒08‒27
twelve papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Revenue guarantees in auctions with a (correlated) common prior and additional information By Yamashita, Takuro
  2. Revenue-capped efficient auctions By Muto, Nozomu; Shirata, Yasuhiro; Yamashita, Takuro
  3. The Simple Empirics of Optimal Online Auctions By Dominic Coey; Bradley Larsen; Kane Sweeney; Caio Waisman
  4. Optimal Public Information Disclosure by Mechanism Designer By Yamashita, Takuro
  5. On the Foundations of Ex Post Incentive Compatible Mechanisms By Yamashita, Takuro; Zhu, Shuguang
  6. Robust Pricing with Refunds By Toomas Hinnosaar; Keiichi Kawai
  7. On Competing Mechanisms under Exclusive Competition By Andrea Attar; Eloisa Campioni; Gwenaël Piaser
  8. Learning in repeated multiple unit combinatorial auctions: An experimental study By Iftekhar, M. S.; Tisdell, J. G.
  9. New electoral systems and old referendums By Gabrielle Demange
  10. Platform Trading with an OTC Market Fringe By Jerome Dugast; Pierre-Olivier Weill; Semih Uslu
  11. A Walrasian Theory of Sovereign Debt Auctions with Asymmetric Information By Harold Cole; Daniel Neuhann; Guillermo Ordoñez
  12. The Information Content of the Limit Order Book By Arzandeh, Mehdi; Frank, Julieta

  1. By: Yamashita, Takuro
    Abstract: This paper considers auction environments with a (possibly correlated) common prior over bidders' values, where each bidder may have additional information (e.g., through information acquisition). Under certain conditions, we characterize the optimal mechanisms in terms of the expected revenue that is guaranteed given whatever additional information is available to the bidders. Even if the values are correlated,we do not necessarily have full-surplus extraction, and moreover, the optimal mechanism resembles those in the independently distributed cases. Specifically, we show that (i) a second-price auction is optimal among all the efficient mechanisms, and (ii) it is rate-optimal among all the mechanisms.
    Keywords: Mechanism design; Auction; Correlated private information;Information acquisition; Revenue guarantee
    Date: 2018–07
  2. By: Muto, Nozomu; Shirata, Yasuhiro; Yamashita, Takuro
    Abstract: We study an auction that maximizes the expected social surplus under an upperbound constraint on the seller's expected revenue, which we call a revenue cap. Such a constrained-efficient auction may arise, for example, when: (i) the auction designer is "pro-buyer", that is, he maximizes the weighted sum of the buyers' and seller's auction payoffs, where the weight for the buyers is greater than that for the seller; (ii) the auction designer maximizes the (unweighted) total surplus in a multi-unit auction in which the number of units the seller owns is private information; or (iii) multiple sellers compete to attract buyers before the auction. We characterize the mechanisms for constrained-efficient auctions and identify their important properties. First, the seller sets no reserve price and sells the good for sure. Second, with a nontrivial revenue cap, "bunching" is necessary. Finally, with a sufficiently severe revenue cap, the constrained-efficient auction has a bid cap, so that bunching occurs at least "at the top," that is, "no distortion at the top" fails.
    Date: 2018–07
  3. By: Dominic Coey; Bradley Larsen; Kane Sweeney; Caio Waisman
    Abstract: We study reserve prices computed to maximize the expected profit of the seller based on historical observations of incomplete bid data typically available to the auction designer in online auctions for advertising or e-commerce. This direct approach to computing reserve prices circumvents the need to fully recover distributions of bidder valuations. We derive asymptotic results and also provide a new bound, based on the empirical Rademacher complexity, for the number of historical auction observations needed in order for revenue under the estimated reserve price to approximate revenue under the optimal reserve arbitrarily closely. This simple approach to estimating reserves may be particularly useful for auction design in Big Data settings, where traditional empirical auctions methods may be costly to implement. We illustrate the approach with e-commerce auction data from eBay. We also demonstrate how this idea can be extended to estimate all objects necessary to implement the Myerson (1981) optimal auction.
    JEL: C10 D44 L10
    Date: 2018–06
  4. By: Yamashita, Takuro
    Abstract: We consider a mechanism design environment where a principal can partially control agents' information before they play a mechanism (e.g., a seller disclosing quality information). Assuming that the principal can ex ante commit to his disclosure policy, this is a Bayesian persuasion problem with an endogenous payoff function as a consequence of optimal mechanism design. Wefirst show that, if the principal's and agents' information are independent or affiliated, and if the implementable set of (non-monetary) allocation rules is invariant to disclosure policies, then it is optimal for the principal to disclose all the relevant information. In case of negative correlation or in case the set of implementable allocation rules varies with disclosure policies, then full disclosure is not necessarily optimal. We then characterize the optimal (non-full) disclosure policy under additional assumptions, which, viewed as a Bayesian persuasion problem, provides a solution to a novel class of environments.
    Date: 2018–07
  5. By: Yamashita, Takuro; Zhu, Shuguang
    Abstract: In private-value auction environments, Chung and Ely (2007) establish maxmin and Bayesian foundations for dominant-strategy mechanisms. We first show that similar foundation results for ex post mechanisms hold true even with interdependent values if the interdependence is only cardinal. This includes, for example, the one-dimensional environments of Dasgupta and Maskin (2000) and Bergemann and Morris (2009b). Conversely, if the environment exhibits ordinal interdependence, which is typically the case with multi-dimensional environments(e.g., a player's private information comprises a noisy signalof the common value of the auctioned good and an idiosyncraticprivate-value parameter), then in general, ex post mechanisms do not have foundation. That is, there exists a non-ex-post mechanism that achieves strictly higher expected revenue than the optimal ex post mechanism, regardless of the agents' high-order beliefs.
    Date: 2018–07
  6. By: Toomas Hinnosaar; Keiichi Kawai
    Abstract: We characterize a selling mechanism that is robust to the seller's uncertainty about the buyer's signal structure. We show that by offering a generous refund policy the seller can significantly reduce this type of uncertainty and regain market power. A simple mechanism that utilizes a generous refund policy and random discounts achieves the best guaranteed-profit among all possible mechanisms.
    Date: 2018–08
  7. By: Andrea Attar (DEF & CEIS, Università di Roma Tor Vergata and Toulouse School of Economics (CNRS)); Eloisa Campioni (DEF & CEIS, Università di Roma Tor Vergata); Gwenaël Piaser (IPAG Business School)
    Abstract: We study games in which several principals design mechanisms in the presence of privately informed agents. Competition is exclusive: each type of each agent can participate with at most one principal and meaningfully communicate only with him. Economic models of exclusive competition restrict principals to use standard direct mechanisms, which induce truthful revelation of agents’ exogenous private information. This paper investigates the rationale for this restriction. We provide two results. First, we construct examples showing that direct mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling strongly robust equilibrium outcomes survive against principals’ unilateral deviations toward arbitrary mechanisms.
    Keywords: Competing Mechanisms, Exclusive Competition, Incomplete Information
    JEL: D82
    Date: 2018–08–09
  8. By: Iftekhar, M. S.; Tisdell, J. G.
    Abstract: The motivation of this paper is to understand trader behaviour and learning in a complex setting where finding a best strategy might not be intuitive. The assertion made is that feedback information can help in updating strategies through repeated bidding processes. The paper explores this assertion through the results of a series of repeated multiple unit combinatorial auction laboratory experiments where item and package traders interact under three information treatments: 1) basic information feedback on market prices and status of their own bids; 2) basic information feedback and all winning bids; and 3) market prices and the status of all bids. We compare bidding behavior with a local optimal package selection model. We then estimate an experience weighted attraction learning (EWA) model of bidding behavior. We observe that package traders follow price feedback information more closely than item traders, especially in the basic treatment information. With additional information package traders substantially deviate from best response bidding strategy resulting in a loss of efficiency. Finally, item traders tend to remember their past experiences more than package traders in low information environments. In high information environments the trend is reversed. The implications of this study could be significant for market design. The standard assumption that more information in combinatorial market design is better for traders may not hold in all cases.
    Keywords: Environmental Economics and Policy
    Date: 2018–01–25
  9. By: Gabrielle Demange (PSE - Paris-Jourdan Sciences Economiques - CNRS - Centre National de la Recherche Scientifique - ENPC - École des Ponts ParisTech - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - ENS Paris - École normale supérieure - Paris)
    Abstract: I discuss the future of electoral systems' design. Two routes are worth investigating. First, new voting procedures can be designed and implemented due to new computing and communication facilities. I illustrate with two positive recent experiments in France and Switzerland. Second, the well-known old referendum needs to be investigated more thoroughly, especially because it is being increasingly popular in a variety of situations. I discuss some issues and directions for its improvement.
    Keywords: Approval voting,New Apportionment Procedure,bi-apportionment,referendum
    Date: 2018–08–01
  10. By: Jerome Dugast (University of Luxembourg); Pierre-Olivier Weill (University of California, Los Angeles); Semih Uslu (Johns Hopkins University)
    Abstract: We study the privately and socially optimal participation of investors in a centralized platform or in an over-the-counter (OTC) market. Investors incur costs to trade in the platform, in the OTC market, or in both at the same time. Investors differ from each other in risk-sharing needs and OTC market trading capacities. We show that investors with low risk-sharing needs and large trading capacities endogenously emerge as OTC intermediaries, and have the strongest private incentives to enter the OTC market vs. the trading platform. Investors with strong risk-sharing needs and low trading capacities endogenously emerge as OTC customers, and have the weakest private incentive to enter the OTC market vs. the trading platform. Turning to social welfare, we provide two necessary conditions for customers’ private incentives to be excessively large relative to their social contribution. Mandating or subsidizing trade in a centralized venue can be welfare improving only if these conditions are satisfied. First, investors must differ mostly in terms of OTC trading capacities. Second, participation costs must induce exclusive participation decisions. Based on the empirical trading patterns generated by closed-form examples of our model, we argue that the real-world OTC markets might satisfy the conditions under which mandating or subsidizing centralized trade is welfare improving.
    Date: 2018
  11. By: Harold Cole; Daniel Neuhann; Guillermo Ordoñez
    Abstract: How does investors' information about a country's fundamentals, and the fact that this information may be asymmetrically held, affect a country's financing cost? Motivated by this question, and by the observation that sovereign bonds are usually auctioned in large lots to a large number of potential investors, we develop a novel model of auctions with asymmetric information that relies on price-taking and rational expectations. We first characterize sovereign bond prices for different degrees of asymmetric information under two commonly-used protocols: discriminatory-price auctions and uniform-price auctions. We show that there is trade-off between these protocols if information is sufficiently asymmetric: expected bond yields are higher when pricing is discriminatory, but yield volatility is higher when pricing is uniform. We then study endogenous information acquisition and find that (i) discriminatory auctions may display multiple welfare-ranked informational equilibria, and (ii) investors are less likely to acquire information in uniform auctions.
    JEL: D4 D44 D53 E4 E5 F34
    Date: 2018–08
  12. By: Arzandeh, Mehdi; Frank, Julieta
    Abstract: Over the past decade agricultural commodity futures trading has migrated to the electronic platform from the traditional outcry system. Trades in the electronic platform are conducted through a computerized system where all traders submit their orders with their intended prices and number of contracts. The orders that match the best prevailing price from the opposite side are immediately executed and are called market orders. The orders that are not matched immediately are called limit orders and the system storing these orders is the limit order book (LOB). At any point in time, the LOB contains all the resting orders on the demand and supply sides at different price levels in descending and ascending order, respectively, beyond the best bid and best ask (BBA). Recent finance literature has found evidence that informed traders may submit limit orders instead of market orders as a part of their trading strategies. This means the levels of the LOB beyond the BBA may contain valuable information facilitating the price discovery process of these commodities. We reconstruct the LOB for five major agricultural commodities namely lean hogs, live cattle, corn, wheat, and soybeans as well as the CME Emini S&P 500. Three information share metrics are computed. The results show that the contribution of the levels of the LOB beyond the BBA to price discovery of agricultural commodities is over thirty percent, more than that of E-mini S&P 500. Moreover, the results suggest that the levels of LOB beyond BBA have more information for grains than for meats. Au cours de la dernière décennie, les transactions à terme de marchandises agricoles ont migré du système de criée traditionnel vers la plateforme électronique. Les échanges sur la plateforme électronique sont gérés à travers un système informatisé où tous les négociateurs soumettent leurs commandes avec leurs prix et nombres de contrats voulus. Les commandes qui s'alignent au meilleur prix en vigueur du côté opposé sont immédiatement exécutées et sont appelées ordres de valeur marchande. Les commandes qui ne correspondent pas immédiatement sont appelées commandes limitées et le système qui enregistre ces commandes porte le nom de carnet de commandes limitées (limit order book, LOB). À n'importe quel moment dans le temps, le LOB contient toutes les commandes restantes à différents niveaux de prix en ordre décroissant du côté de l'offre et en ordre croissant du côté de la demande au-delà de la meilleure offre et la meilleure demande (best bid and best ask, BBA). La littérature financière récente a trouvé des preuves que les négociateurs informés peuvent soumettre des commandes limitées au lieu d'ordres de valeur marchande dans le cadre de leurs stratégies commerciales. Ceci signifie que les niveaux du LOB au-delà de la BBA peuvent contenir des informations de grande valeur facilitant le processus de découverte des prix de ces marchandises. Nous avons reconstruit le LOB de cinq marchandises agricoles majeures à savoir le porc, le bétail vivant, le maïs, le blé et le soja, de même que le CME E-mini S&P 500. Trois indicateurs de partage de l'information sont calculés. Les résultats montrent que la contribution des niveaux du LOB au-delà de la BBA à la découverte des prix des marchandises agricoles s'élève à plus de trente pour cent, plus que celle de Emini S&P 500. En outre, les résultats suggèrent que les niveaux du LOB au-delà de la BBA offrent plus d'informations pour les céréales que pour les viandes
    Keywords: Agricultural Finance, Marketing
    Date: 2017

This nep-des issue is ©2018 by Guillaume Haeringer and Alex Teytelboym. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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