nep-des New Economics Papers
on Economic Design
Issue of 2018‒09‒17
ten papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Strategy-Proof Allocation of Objects Revisited By Andersson, Tommy; Svensson, Lars-Gunnar
  2. An analysis of the two-bidder all-pay auction with common values By Chi, Chang Koo
  3. Asymmetric Budget Constraints in a First Price Auction By Bobkova, Nina
  4. Market Power and Welfare in Asymmetric Divisible Good Auctions By Manzano, Carolina; Vives, Xavier
  5. Efficient Ascending Menu Auctions with Budget Constrained Bidders By Zaifu Yang; Jingsheng Yu
  6. A non-game-theoretic approach to bidding in first-price and all-pay auctions By Paul Pezanis-Christou; Hang Wu
  7. The Reference Price Is Not The Limit: Analysis Of Consumer Valuations In Second-price Vickrey Auction By Dolgopolova, Irina; Teuber, Ramona; Roosen, Jutta
  8. Allocation Mechanisms, Incentives, and Endemic Institutional Externalities By Hammond, Peter J
  9. Approval voting and Shapley ranking By DEHEZ Pierre,; GINSBURGH Victor,
  10. Augmenting Markets with Mechanisms By Duffie, Darrell; Antill, Samuel

  1. By: Andersson, Tommy (Department of Economics, Lund University); Svensson, Lars-Gunnar (Department of Economics, Lund University)
    Abstract: We consider an allocation problem with a finite number of objects, and agents that demand at most one of the objects. The study provides a characterization of a class of strategy-proof price mechanisms. A mechanism belongs to the class if and only if the price space is restricted in a special way and, given that restriction, the outcome prices are minimal. The domain of the mechanisms is the set of general preference profiles (R_1,R_2,…,R_n), i.e., where R_a is agent a's rational, monotonic and continuous preference ordering over objects and prices.
    Keywords: Characterization; House-allocation; Strategy-proofness; Multiobject auction
    JEL: D44 D63 D78 D82
    Date: 2018–09–03
  2. By: Chi, Chang Koo (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: This paper studies a symmetric two-bidder all-pay auction where the bidders compete for a prize whose unknown common value is either high or low. The bidders’ private signals (or types) are discrete and affiliated through the value. Even with Affiliated signals, monotonicity of equilibria can fail in the sense that the bidder With a higher signal does not always win the auction. I show that when monotonicity fails, there exist multiple symmetric equilibria but the bidder’s type-dependent payoff is invariant across the equilibria. The paper provides a closed-form formula for the equilibrium payoffs and a condition for rent dissipation.
    Keywords: All-pay auctions; common values; correlated signals; non-monotone equilibria; rent dissipation rent dissipation
    JEL: D44 D72
    Date: 2018–08–28
  3. By: Bobkova, Nina
    Abstract: I solve a first-price auction for two bidders with asymmetric budget distributions and known valuations for one object. I show that in any equilibrium, the expected utilities and bid distributions of both bidders are unique. If budgets are sufficiently low, the bidders will bid their entire budget in any equilibrium. For sufficiently high budgets, mass points in the equilibrium strategies arise. A less restrictive budget distribution could make both bidders strictly worse off. If the budget distribution of a bidder is dominated by the budget distribution of his opponent in the reverse-hazard rate order, the weaker bidder will bid more aggressively than his stronger opponent. In contrast to existing results for symmetric budget distributions, with asymmetric budget distributions, a second-price auction can yield a strictly higher revenue than a first-price auction. Under an additional assumption, I derive the unique equilibrium utilities and bid distributions of both bidders in an all-pay auction.
    Keywords: Budget Constraints; First Price Auctions; Asymmetric Bidders
    JEL: C72 D44 D82
    Date: 2017–02–03
  4. By: Manzano, Carolina (Rovira i Virgili University); Vives, Xavier (IESE Business School)
    Abstract: We analyze a divisible good uniform-price auction that features two groups each with a finite number of identical bidders. Equilibrium is unique, and the relative market power of a group increases with the precision of its private information but declines with its transaction costs. In line with empirical evidence, we .nd that an increase in transaction costs and/or a decrease in the precision of a bidding group.s information induces a strategic response from the other group, which thereafter attenuates its response to both private information and prices. A "stronger" bidding group -which has more precise private information, faces lower transaction costs, and is more oligopsonistic- has more market power and so will behave competitively only if it receives a higher per capita subsidy rate. When the strong group values the asset no less than the weak group, the expected deadweight loss increases with the quantity auctioned and also with the degree of payoff asymmetries. Market power and the deadweight loss may be negatively associated.
    Keywords: demand/supply schedule competition; private information; liquidity auctions; Treasury auctions; electricity auctions;
    JEL: D44 D82 E58 G14
    Date: 2017–01–16
  5. By: Zaifu Yang; Jingsheng Yu
    Abstract: The Lucas (1978) asset pricing model lies at the heart of modern macro-finance. At its core, it provides an analysis of the equilibrium price of a long-lived financial asset in an economy where consumption is the objective, and the sole purpose of the asset is to smooth consumption through time. Experimental tests of the model are mainly confined to Crockett et al (forthcoming 2019) and Asparouhova et al (2016), both of them using a particular instantiation of the Lucas Model. Here we adopt a different instantiation, extending their analyses from a two-period oscillating world to a three-period cyclical world. We also go one step further, and compare this asset market solution (to a consumption-smoothing problem) with the perhaps intuitively more reasonable solution provided by a credit market, in which agents can directly trade consumption between periods. We find that the latter is more efficient in smoothing consumption, and that prices in the credit market are closer to their equilibrium values than those in the asset market, and also less volatile. We find evidence of uncompetitive trading in both markets.
    Keywords: Dynamic menu auction, core, budget constraint, efficiency.
    JEL: D44
    Date: 2018–09
  6. By: Paul Pezanis-Christou (School of Economics, University of Adelaide); Hang Wu (Harbin Institute of Technology)
    Abstract: We propose a novel approach to the modelling of behavior in first-price and all-pay auctions that builds on the presumption that bidders do not engage in game-theoretic reasoning. Our models, AsP (for Aspired-Payoff) and nIBE (for naïve Impulse Balance Equilibrium), exploit the information available to bidders and assume risk neutrality, no best-responding behavior and no profit-maximization. Their parameter-free variants entail either overbidding or Nash equilibrium bidding. We assess their explanatory power with the data of first-price and all-pay auction experiments and find that overall, our models outperform Nash in explaining the data on either format. Assuming probability misperception further improves their goodness-of-fit. Assuming impulse weighting in nIBE may lead to overbidding and organizes the effect of end-of-round information feedback on behavior in repeated auctions.
    Keywords: first-price auctions; all-pay auctions, overbidding, anticipated regret; information-feedback; Symmetric Bayes-Nash Equilibrium; Impulse Balance Equilibrium; nonlinear probability weighting; revenue equivalence; experiments
    JEL: C91 D03 D4 D44 D81
    Date: 2018–08
  7. By: Dolgopolova, Irina; Teuber, Ramona; Roosen, Jutta
    Abstract: We assess the role of perceived reference price (PRP) in consumers’ valuations for four different bread types in secondprice Vickrey auctions taking into account the presence of market substitutes. A possible censoring effect of perceived reference price is modeled using a random effects Tobit model with lower and upper thresholds. The estimates are compared to a random effects Tobit model censored at zero only. In contrast to the existing literature, our results indicate that including perceived reference price in upper threshold does not improve the model fit and thus question the role of PRP as an upper limit for auction bids.
    Keywords: Consumer/Household Economics, Demand and Price Analysis
    Date: 2017–08–29
  8. By: Hammond, Peter J (Department of Economics,and CAGE (Competitive Advantage in the Global Economy), University of Warwick)
    Abstract: Whether an economic agent's decision creates an externality often depends on the institutional context in which the decision was made. Indeed, in orthodox economics, a technological or exogenous externality occurs just in case one agent's economic welfare or production possibilities are directly affected by the market decisions of other agents. A pecuniary externality occurs just in case one consumer's economic welfare or producer's profit is affected indirectly by price changes caused by changes in other agents' decisions. Similarly, an institutional or endogenous externality may arise whenever allocations are determined by a mechanism that is not strategyproof for some agent. Then even a resource balance constraint creates an institutional externality except in special cases such as when no individual agent's action can affect market clearing prices - i.e., there are no pecuniary externalities JEL classification numbers: D63 ; D70 ; D90 ; Q54 ; Q56
    Date: 2018
  9. By: DEHEZ Pierre, (Université catholique de Louvain, CORE, Belgium); GINSBURGH Victor, (Université libre de Bruxelles and CORE)
    Abstract: Approval voting allows voters to list any number of candidates. Their scores are obtained by summing the votes cast in their favor. Fractional voting instead follows the One-person-one-vote principle by endowing voters with a single vote that they may freely distribute among candidates. In this paper, we show that fairness requires the distribution of votes to be uniform. Uniform fractional voting corresponds to Shapley ranking that was introduced to rank wines as the Shapley value of a cooperative game with transferable utility. Here we analyze the properties of these "ranking games" and provide an axiomatic foundation to Shapley ranking. We also analyze Shapley ranking as a social welfare function and compare it to approval ranking.
    Keywords: approval voting, Shapley value
    JEL: D71 C71
    Date: 2018–04–18
  10. By: Duffie, Darrell (Stanford University); Antill, Samuel (Stanford University)
    Abstract: We compute optimal mechanism designs for each of a sequence of size-discovery sessions, at which traders submit reports of their excess inventories of an asset to a session operator, which allocates transfers of cash and the asset. The mechanism design induces truthful reports of desired trades and efficiently reallocates the asset across traders. Between sessions, in a dynamic exchange double-auction market, traders strategically lower their price impacts by shading their bids, causing socially costly delays in rebalancing the asset across traders. As the expected frequency of size-discovery sessions is increased, market depth is further lowered, offsetting the efficiency gains of the size-discovery sessions. Adding size-discovery sessions to the exchange market has no social value, beyond that of a potential initializing session. If, as in practice, size-discovery sessions rely on price information from the exchange to set the terms of trade, then bidding incentives are further weakened, strictly reducing overall market efficiency. Keywords: mechanism design, price impact, size discovery, allocative efficiency, workup, dark pool, market design.
    Date: 2018–05

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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