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on Economic Design |
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Issue of 2018‒09‒10
eleven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Jetlir Duraj |
| Abstract: | News utility is the idea that the utility of an agent depends on changes in her beliefs over consumption and money. We introduce news utility into otherwise classical static Bayesian mechanism design models. We show that a key role is played by the timeline of the mechanism, i.e. whether there are delays between the announcement stage, the participation stage, the play stage and the realization stage of a mechanism. Depending on the timing, agents with news utility can experience two additional news utility effects: a surprise effect derived from comparing to pre-mechanism beliefs, as well as a realization effect derived from comparing post-play beliefs with the actual outcome of the mechanism. We look at two distinct mechanism design settings reflecting the two main strands of the classical literature. In the first model, a monopolist screens an agent according to the magnitude of her loss aversion. In the second model, we consider a general multi-agent Bayesian mechanism design setting where the uncertainty of each player stems from not knowing the intrinsic types of the other agents. We give applications to auctions and public good provision which illustrate how news utility changes classical results. For both models we characterize the optimal design of the timeline. A timeline featuring no delay between participation and play but a delay in realization is never optimal in either model. In the screening model the optimal timeline is one without delays. In auction settings, under fairly natural assumptions the optimal timeline has delays between all three stages of the mechanism. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1808.04020&r=des |
| By: | Youngsub Chun (Seoul National University); Duygu Yengin (School of Economics, University of Adelaide) |
| Abstract: | Given a group of agents, the queueing problem is concerned with finding the order in which to serve agents and the (positive, zero, or negative) monetary transfers they should receive. In this paper, we explore the central open questions in queueing problem. First, we characterize the class of strategy-proof and envy-free mechanisms. Note that no-envy implies queue-efficiency in the queueing problem. We also characterize the subclasses that generate bounded deficit or no-deficit. Then, we address the open questions regarding solidarity in the queueing problem and characterize the classes of queue-efficient and strategy-proof mechanisms which satisfy respectively (i) cost monotonicity and (ii) population/slot monotonicity. Finally, we prove that among the envy-free and strategy-proof mechanisms, the only ones that satisfy either cost monotonicity or population monotonicity are an extension of the Pivotal/Reward-based Pivotal mechanisms. |
| Keywords: | Queueing problem; no-envy; queue-efficiency; strategy-proofness; population monotonicity; slot monotonicity; population solidarity; cost monotonicity; VCG mechanisms; Pivotal mechanisms; Reward-based Pivotal mechanism; Symmetrically Balanced VCG mechanism |
| JEL: | C72 D63 D71 D82 |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:adl:wpaper:2018-10&r=des |
| By: | Basteck, Christian (ECARES Brussels); Klaus, Bettina (University of Lausanne); Kübler, Dorothea (WZB Berlin Social Science Center) |
| Abstract: | The use of lotteries is advocated to desegregate schools. We study lottery quotas embedded in the two most common school choice mechanisms, namely deferred and immediate acceptance mechanisms. Some seats are allocated based on merit (e.g., grades) and some based on lottery draws. We focus on the effect of the lottery quota on truth-telling, the utility of students, and the student composition at schools, using theory and experiments. We find that the lottery quota strengthens truth-telling in equilibrium when the deferred acceptance mechanism is used while it has no clear effect on truth-telling in equilibrium for the immediate acceptance mechanism. This finds support in the experiment. Moreover, the lottery quota leads to more diverse school populations in the experiments, as predicted. Comparing the two mechanisms, students with the lowest grades profit more from the introduction of the lottery under immediate than under deferred acceptance. |
| Keywords: | school choice; immediate acceptance mechanism; deferred acceptance mechanism; lotteries; experiment; market design; |
| JEL: | C78 C91 D82 I24 |
| Date: | 2018–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:114&r=des |
| By: | Nawar, Abdel-Hameed; Sen, Debapriya |
| Abstract: | This paper establishes an interesting link between kth price auctions and Catalan numbers by showing that for distributions that have linear density, the bid function at any symmetric, increasing equilibrium of a kth price auction (k is 3 or higher) can be represented as a finite series of k-2 terms whose lth term involves the lth 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 kth price auction for a non-uniform distribution. |
| Keywords: | kth price auction; the revenue equivalence principle; Catalan numbers; Jensen's identity; Hagen-Rothe's identity |
| JEL: | C72 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:88553&r=des |
| By: | Clark, Robert; Coviello, Decio; Gauthier, Jean-Francois; Shneyerov, Art |
| Abstract: | We study the impact of an investigation into collusion and corruption to learn about the organization of cartels in public procurement auctions. Our focus is on Montreal’s asphalt industry, where there have been allegations of bid rigging, market segmentation, complementary bidding and bribes to bureaucrats, and where, in 2009, a police investigation was launched. We collect procurement data and use a difference-in-difference approach to compare outcomes before and after the investigation in Montreal and in Quebec City, where there have been no allegations of collusion or corruption. We find that entry and participation increased, and that the price of procurement decreased. We then decompose the price decrease to quantify the importance of two aspects of cartel organization, coordination and entry deterrence, for collusive pricing. We find that the latter explains only a small part of the decrease. |
| Keywords: | Financial Economics, Political Economy |
| Date: | 2018–02 |
| URL: | http://d.repec.org/n?u=RePEc:ags:quedwp:274727&r=des |
| By: | Qingmin Liu; Konrad Mierendorff; Xianwen Shi; Weijie Zhong |
| Abstract: | We study the role of limited commitment in a standard auction environment. In each period, the seller can commit to an auction with a reserve price but not to future reserve prices. We characterize the set of equilibrium profits attainable for the seller as the period length vanishes. An immediate sale by efficient auction is optimal when there are at least three buyers. For many natural distributions two buyers is enough. Otherwise, we give conditions under which the maximal profit is attained through continuously declining reserve prices. |
| Keywords: | Auctions, Limited Commitment, Mechanism Design, Coase Conjecture |
| JEL: | D42 D44 D82 |
| Date: | 2018–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-617&r=des |
| By: | Philip A. Haile (Cowles Foundation, Yale University); Yuichi Kitamura (Cowles Foundation, Yale University) |
| Abstract: | A common concern in the empirical study of auctions is the likely presence of auction-specific factors that are common knowledge among bidders but unobserved to the econometrician. Such unobserved heterogeneity confounds attempts to uncover the underlying structure of demand and information, typically a primary feature of interest in an auction market. Unobserved heterogeneity presents a particular challenge in first-price auctions, where identification arguments rely on the econometrician’s ability to reconstruct from observables the conditional probabilities that entered each bidder’s equilibrium optimization problem; when bidders condition on unobservables, it is not obvious that this is possible. Here we discuss several approaches to identification developed in recent work on first-price auctions with unobserved heterogeneity. Despite the special challenges of this setting, all of the approaches build on insights developed in other areas of econometrics, including those on control functions, measurement error, and mixture models. Because each strategy relies on different combinations of model restrictions, technical assumptions, and data requirements, their relative attractiveness will vary with the application. However, this varied menu of results suggests both a type of robustness of identifiability and the potential for expanding the frontier with additional work. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2141&r=des |
| By: | Somaini, Paulo (Stanford University) |
| Abstract: | This paper provides a positive identification result for procurement models with asymmetric bidders, statistically dependent private information, and interdependent costs. When bidders are risk neutral, the model's payoff-relevant primitives are: (i) the joint distribution of private information and (ii) each bidder's full information expected cost--the expected cost conditional on own and competitors' information. These primitives are nonparametrically identified from the distribution of bids conditional on observable cost shifters under the following four assumptions. First, each bidder's private information can be summarized by a real-valued signal. Second, the joint distribution of bidders' signals does not depend on cost shifters. Third, each bidder's full-information cost depends on own cost shifters but not on competitors'. Fourth, conditional on covariates, the observed data are generated by the repeated play of the same equilibrium where bidders use monotone pure strategies. Using data from Highway Procurements in Michigan and exploiting variation in contractors' distance to each project, I estimate each major bidder's full-information costs. The estimates are used to evaluate alternative reserve prices and policies that reduce the severity of the winner's curse by restricting participation. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3702&r=des |
| By: | Edwyna Harris (Monash University); Sumner La Croix (Dept. of Economics, University of Hawaii) |
| Abstract: | In 1834, Britain’s Parliament passed the South Australia Act establishing South Australia as a colony. By December 1835, 130 British investors had purchased 437 priority land orders (PLO) at £81 per order, allowing selection of a surveyed one-acre lot in the capital city of Adelaide and 80 surveyed country acres. In March 1837, PLO investors selected 437 lots from 1,000 surveyed Adelaide lots, with remaining lots sold one week later at auction. Investors who sold city lots in 1838/1839 earned on average 59 times initial investment, while investors who held until 1850/1852 saw the average assessed value of Adelaide lots and buildings increase by 16 times the initial investment in the lot. Initial Investors were able to identify higher-value lots, as higher prices paid for lots in 1837 predict higher sales prices in 1838/1839 and early selection of lots and higher prices paid for lots in 1837 predict higher assessed property values in 1850. |
| Keywords: | Adelaide, colonization, priority land order, South Australia, auction, Wakefield, Hindmarsh |
| JEL: | N47 N57 N97 R30 D44 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:hai:wpaper:201809&r=des |
| By: | Alex Gershkov; Benny Moldovanu; Xianwen Shi |
| Abstract: | We study a multi-dimensional collective decision problem under incomplete information. Agents have Euclidean preferences and vote by simple majority on each issue (dimension), yielding the coordinate-wise median. Judicious rotations of the orthogonal axes -- the issues that are voted upon -- lead to welfare improvements. If the agents' types are drawn from a distribution with independent marginals then, under weak conditions, voting on the original issues is not optimal. If the marginals are identical (but not necessarily independent), then voting first on the total sum and next on the differences is often welfare superior to voting on the original issues. We also provide various lower bounds on incentive efficiency: in particular, if agents' types are drawn from a log-concave density with I.I.D. marginals, a second-best voting mechanism attains at least 88% of the first-best efficiency. Finally, we generalize our method and some of our insights to preferences derived from distance functions based on inner products. |
| Keywords: | Multidimensional Voting, Mechanism Design, Rotation, Strategy-Proof Mechanisms, Budgeting Procedure |
| JEL: | D82 D72 D78 |
| Date: | 2018–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-616&r=des |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Alessandro Bonatti (MIT) |
| Abstract: | We survey a recent and growing literature on markets for information. We o?er a comprehensive view of information markets through an integrated model of consumers, information intermediaries, and ?rms. The model embeds a large set of applications ranging from sponsored search advertising to credit scores to information sharing among competitors. We then review a mechanism design approach to selling information in greater detail. We distinguish between ex ante sales of information (the buyer acquires an information structure) and ex post sales (the buyer pays for speci?c realizations). We relate this distinction to the di?erent products that brokers, advertisers, and publishers use to trade consumer information online. We discuss the endogenous limits to the trade of information that derive from its potential adverse use for consumers. Finally, we revisit the role of recommender systems and arti?cial intelligence systems as markets for indirect information. |
| Keywords: | Information markets, Information design, Intermediaries, Mechanism design, Predictions, ratings |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2142&r=des |