
on Economic Design 
By:  Matt Van Essen; John Wooders (Division of Social Science) 
Abstract:  We study the problem of fairly allocating heterogenous items, priorities, positions, or property rights to participants with equal claims, in an incomplete information environment. We introduce a dynamic auction for solving this problem and we characterize both Bayes Nash equilibrium and “maxmin perfect” play. Building on these characterizations we show that: (i) equilibrium play converges to maxmin perfect play as bidders become infinitely risk averse, and (ii) each bidder obtains his Shapley value when every bidder follows his maxmin perfect strategy. Hence, the equilibrium allocation converges to the Shapley value allocation as bidders become more risk averse. Together these results provide both noncooperative and decision theoretic foundations for the Shapley value in an environment with incomplete information. 
Date:  2018–08 
URL:  http://d.repec.org/n?u=RePEc:nad:wpaper:20180019&r=des 
By:  Nikhil Agarwal; Itai Ashlagi; Eduardo Azevedo; Clayton R. Featherstone; Ömer Karaduman 
Abstract:  We show that kidney exchange markets suffer from traditional market failures that can be fixed to increase transplants by 25%55%. First, we document that the market is fragmented and inefficient: most transplants are arranged by hospitals instead of national platforms. Second, we propose a model to show two sources of inefficiency: hospitals do not internalize their patients’ benefits from exchange, and current mechanisms suboptimally reward hospitals for submitting patients and donors. Third, we estimate a production function and show that individual hospitals operate below efficient scale. Eliminating this inefficiency requires a combined approach using new mechanisms and solving agency problems. 
JEL:  D42 L11 
Date:  2018–06 
URL:  http://d.repec.org/n?u=RePEc:nbr:nberwo:24775&r=des 
By:  Yunan Li (Department of Economics and Finance, City University of Hong Kong) 
Abstract:  A principal has to allocate a good among a number of agents, each of whom values the good. Each agent has private information about the principal's payoff if he receives the good. There are no monetary transfers. The principal can inspect agents' reports at a cost and penalize them, but the punishments are limited. I characterize an optimal mechanism featuring two thresholds. Agents whose values are below the lower threshold and above the upper threshold are pooled, respectively. If the number of agents is small, then the pooling area at the top of value distribution disappears. If the number of agents is large, then the two pooling areas meet and the optimal mechanism can be implemented via a shortlisting procedure. 
Keywords:  Mechanism Design, Costly Verification, Limited Punishments 
JEL:  D82 
Date:  2017–09–28 
URL:  http://d.repec.org/n?u=RePEc:pen:papers:16009&r=des 
By:  Yunan Li (Department of Economics and Finance, City University of Hong Kong) 
Abstract:  This paper studies the design of ex ante efficient mechanisms in situations where a single item is for sale, and agents have positively interdependent values and can covertly acquire information at a cost before participating in a mechanism. I find that when interdependency is low and/or the number of agents is large, the ex post efficient mechanism is also ex ante efficient. In cases of high interdependency and/or a small number of agents, ex ante efficient mechanisms discourage agents from acquiring excessive information by introducing randomization to the ex post efficient allocation rule in areas where the information’s precision increases most rapidly. 
Keywords:  Auctions, Mechanism Design, Information Acquisition, Efficiency 
JEL:  C70 D44 D82 D86 
Date:  2017–06–23 
URL:  http://d.repec.org/n?u=RePEc:pen:papers:16007&r=des 
By:  Wu, Haoyang 
Abstract:  The revelation principle asserts that for any indirect mechanism and equilibrium, there is a corresponding direct mechanism with truth as an equilibrium. Although the revelation principle has been a fundamental theorem in the theory of mechanism design for a long time, so far the costs related to strategic actions of agents spent in a mechanism have not been fully discussed. In this paper, we investigate the correctness of the revelation principle when strategies of agents are costly. We point out two key results: (1) The strategy of each agent in the direct mechanism is just to report a type. Each agent does not need to take any other action to prove himself that his reported type is truthful, and should not play the strategy as specified in the indirect mechanism. Hence each agent should not spend the strategic costs in the direct mechanism (see Proposition 1); (2) When strategic costs cannot be neglected in the indirect mechanism, the proof of revelation principle given in Proposition 23.D.1 of the book ``A. MasColell, M.D. Whinston and J.R. Green, Microeconomic Theory, Oxford University Press, 1995'' is wrong (see Proposition 2). We construct a simple labor model to show that a Bayesian implementable social choice function is not truthfully implementable (see Proposition 4), which contradicts the revelation principle. 
Keywords:  Revelation principle; Game theory; Mechanism design. 
JEL:  D71 D82 
Date:  2018–07–11 
URL:  http://d.repec.org/n?u=RePEc:pra:mprapa:87919&r=des 
By:  Audrey Hu (Department of Economics, City University of Hong Kong); Steven Matthews (Department of Economics, University of Pennsylvania); Liang Zou (Department of Economics, University of Amsterdam) 
Abstract:  Received auction theory prescribes that a reserve price which maximizes expected profit should be no less than the seller's own value for the auctioned object. In contrast, a common empirical observation is that many auctions have reserve prices set below seller's values, even at zero. This paper revisits the theory to find a potential resolution of the puzzle for secondprice auctions. The main result is that an optimal reserve price may be less than the seller's value if bidders are risk averse and have interdependent values. Moreover, the resulting outcome may be arbitrarily close to that of an auction that has no reserve price, an absolute auction. 
Keywords:  reserve price, risk aversion, interdependent values, secondprice auction 
JEL:  D44 D82 
Date:  2017–03–13 
URL:  http://d.repec.org/n?u=RePEc:pen:papers:17004&r=des 
By:  Claudia Cerrone (Max Planck Institute for Research on Collective Goods); AuthorName: Yoan Hermstruwer (Max Planck Institute for Research on Collective Goods; Competition Authority, Lisboa, Portugal) 
Abstract:  This paper explores the impact of debarment as a deterrent of collusion in firstprice procurement auctions. We develop a procurement auction model where bidders can form bidding rings, and derive the bidding and collusive behavior under no sanction, debarment and fines. The model's predictions are tested through a lab experiment. We find that debarment and fines both reduce collusion and bids. The deterrent effect of debarment increases in its length. However, the debarment of colluding bidders reduces effciency and increases the bids of nondebarred bidders. The latter suggests that the market size reduction resulting from debarment may trigger tacit collusion. 
Keywords:  debarment, collusion, procurement auctions, procurement law, sanctions 
JEL:  C92 D03 D44 K21 K42 
Date:  2018–04 
URL:  http://d.repec.org/n?u=RePEc:mpg:wpaper:2018_05&r=des 
By:  Ashish Goel; Reyna Hulett; Benjamin Plaut 
Abstract:  We study the allocation of divisible goods to competing agents via a market mechanism, focusing on agents with Leontief utilities. The majority of the economics and mechanism design literature has focused on \emph{linear} prices, meaning that the cost of a good is proportional to the quantity purchased. Equilibria for linear prices are known to be exactly the maximum Nash welfare allocations. \emph{Price curves} allow the cost of a good to be any (increasing) function of the quantity purchased. We show that price curve equilibria are not limited to maximum Nash welfare allocations with two main results. First, we show that an allocation can be supported by strictly increasing price curves if and only if it is \emph{groupdominationfree}. A similarly characterization holds for weakly increasing price curves. We use this to show that given any allocation, we can compute strictly (or weakly) increasing price curves that support it (or show that none exist) in polynomial time. These results involve a connection to the \emph{agentorder matrix} of an allocation, which may have other applications. Second, we use duality to show that in the bandwidth allocation setting, any allocation maximizing a CES welfare function can be supported by price curves. 
Date:  2018–07 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1807.05293&r=des 
By:  AbdelHameed Nawar; Debapriya Sen 
Abstract:  This paper establishes an interesting link between $k$th price auctions and Catalan numbers by showing that for distributions that have linear density, the bid function at any symmetric, increasing equilibrium of a $k$th price auction with $k\geq 3$ can be represented as a finite series of $k2$ terms whose $\ell$th term involves the $\ell$th Catalan number. Using an integral representation of Catalan numbers, together with some classical combinatorial identities, we derive the closed form of the unique symmetric, increasing equilibrium of a $k$th price auction for a nonuniform distribution. 
Date:  2018–08 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:1808.05996&r=des 
By:  Takaaki Abe (JSPS Research Fellow. Graduate School of Economics, Waseda University.); Yukihiko Funaki (School of Political Science and Economics, Waseda University.) 
Abstract:  In this paper, we introduce a new concept of core by extending the de nition of deviation. The traditional de nition of deviation allows for players to deviate if some pro table allocation exists after their deviation, while our new de nition requires that all possible allocations are pro table. Hence, our core becomes a superset of the traditional core. We examine some properties that our new core satis es and provide a sufficient condition for being nonempty. Moreover, we apply Ray's (1989) credibility to our core. 
Keywords:  cooperative game, core, credibility, deviation 
JEL:  C71 
Date:  2018–07 
URL:  http://d.repec.org/n?u=RePEc:wap:wpaper:1805&r=des 
By:  Banerjee, Simanti; Conte, Marc N. 
Abstract:  Conservation procurement auctions are implemented under conditions that deviate from those assumed to derive predictions of bidder behavior. Existing research has emphasized the sensitivity of auction performance and bidder behavior to auction design choices. In the conservation context, procuring agencies must decide how to provide bidders with information about the environmental quality of different conservation practices to manage the tradeoff between an increased probability of selecting the optimal practice and increased rentseeking behavior associated with this information. We utilize an inducedvalue laboratory experiment to explore how access to quality information and variation in the bidsubmission protocol can best be combined to improve auction performance. We nd that the auction performs best when a bidmenu format, in which subjects submit bids for all their practices, is combined with information about the environmental quality rank of available conservation practices. 
Keywords:  Research Methods/ Statistical Methods 
Date:  2017–12–12 
URL:  http://d.repec.org/n?u=RePEc:ags:assa18:266293&r=des 