nep-des New Economics Papers
on Economic Design
Issue of 2018‒10‒01
eight papers chosen by
Alex Teytelboym
University of Oxford

  1. Matching in Dynamic Imbalanced Markets By Itai Ashlagi; Afshin Nikzad; Philipp Strack
  2. Organizing Time Banks: Lessons from Matching Markets By Tommy Andersson; Agnes Cseh; Lars Ehlers; Albin Erlanson
  3. Dynamics and Efficiency in Decentralized Online Auction Markets By Kenneth Hendricks; Alan Sorensen
  4. New and simple algorithms for stable flow problems By Agnes Cseh; Jannik Matuschke
  5. Common ranking and stability of overlapping coalitions By MAULEON Ana,; ROEHL Nils,; VANNETELBOSCH Vincent,
  6. Axiomatic Foundations of a Unifying Core By Stéphane Gonzalez; Aymeric Lardon
  7. Second-Best Mechanisms for Land Assembly and Hold-Out Problems By Zachary Grossman; Jonathan Pincus; Perry Shapiro; Duygu Yengin
  8. Liberal Radicalism: Formal Rules for a Society Neutral among Communities By Vitalik Buterin; Zoe Hitzig; E. Glen Weyl

  1. By: Itai Ashlagi; Afshin Nikzad; Philipp Strack
    Abstract: We study matching policies in a dynamic exchange market with random compatibility, in which some agents are easier to match than others. In steady state this asymmetry creates an endogenous imbalance: hard-to-match agents wait for partners, while easy-to-match agents can match almost immediately upon arrival and leave the market quickly. A greedy policy, which attempts to match agents upon arrival, does not account for the positive externality waiting agents generate as they make it easier to match agents that arrive in the future, and may result in more unmatched than other policies. While this trade-off between a "thicker market" and quick matching is present in small markets we show that it vanishes in large markets and the greedy policy nevertheless dominates any other dynamic matching policy. As arrival rate increases the greedy policy matches a (weakly) higher fraction of agents than any other policy and leads to (weakly) lower average waiting time than any other policy. We show that in a large market greedy matching strictly outperforms batching policies (e.g., weekly matching) and a patient policy, which attempts to match agents only as they are about to depart the market. We test our large market predictions with kidney exchange data from the National Kidney Registry (NKR). Numerical simulations show that, in line with our predictions, the greedy policy matches patient-donor pairs significantly faster (roughly 20-30 days) than other commonly used policies and at most 1\% percent fewer pairs than the patient policy.
    Date: 2018–09
  2. By: Tommy Andersson (Lund University, Department of Economics); Agnes Cseh (Hungarian Academy of Sciences, Centre for Economic and Regional Studies, Institute of Economics); Lars Ehlers (Université de Montréal, Département de Sciences Économiques); Albin Erlanson (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: 2018–08
  3. By: Kenneth Hendricks; Alan Sorensen
    Abstract: Economic theory suggests that decentralized markets can achieve efficient outcomes if buyers and sellers have many opportunities to trade. We examine this idea empirically by developing a tractable dynamic model of bidding in an overlapping, sequential auction environment and estimating the model with detailed data from eBay. Bidders in the model discount their bids to reflect the option value of losing – if they lose, they can come back to try again – and the structure of the model makes it so they effectively bid against a stationary distribution of rivals. We find that dynamic participation makes the market meaningfully more efficient than a benchmark in which buyers have only one opportunity to bid, but the observed outcomes still fall well short of the fully efficient competitive equilibrium.
    JEL: D10 D4 D44 L0
    Date: 2018–09
  4. By: Agnes Cseh (Hungarian Academy of Sciences, Centre for Economic and Regional Studies, Institute of Economics); Jannik Matuschke (TUM School of Management and Department of Mathematics, Technische Universität)
    Abstract: Stable flows generalize the well-known concept of stable matchings to markets in which transactions may involve several agents, forwarding flow from one to another. An instance of the problem consists of a capacitated directed network in which vertices express their preferences over their incident edges. A network flow is stable if there is no group of vertices that all could benefit from rerouting the flow along a walk. Fleiner established that a stable flow always exists by reducing it to the stable allocation problem.We present an augmenting path algorithm for computing a stable flow, the first algorithm that achieves polynomial running time for this problem without using stable allocations as a black-box subroutine. We further consider the problem of finding a stable flow such that the flow value on every edge is within a given interval. For this problem, we present an elegant graph transformation and based on this, we devise a simple and fast algorithm, which also can be used to find a solution to the stable marriage problem with forced and forbidden edges. Finally, we study the stable multicommodity flow model introduced by Király and Pap. The original model is highly involved and allows for commoditydependent preference lists at the vertices and commodity-specific edge capacities. We present several graph-based reductions that show equivalence to a significantly simpler model. We further show that it is NP-complete to decide whether an integral solution exists.
    Keywords: stable flows, restricted edges, multicommodity flows, polynomial algorithm, NP-completeness
    JEL: C63 C78
    Date: 2018–08
  5. By: MAULEON Ana, (Université Saint-Louis Bruxelles and CORE); ROEHL Nils, (University of Paderborn); VANNETELBOSCH Vincent, (CORE, Université catholique de Louvain)
    Abstract: Mauleon, Roehl and Vannetelbosch (GEB, 2018) develop a general theoretical framework to study the stability of overlapping coalition settings. Each group possesses a constitution that contains the rules governing both the composition of the group and the conditions needed to leave the group and/or to become a new member of the group. They propose the concept of constitutional stability to study the group structures that are going to emerge at equilibrium in overlapping coalition settings. They combine requirements on constitutions and preferences for guaranteeing both the existence and the emergence of constitutionally stable group structures. In this paper, we show that an alternative way to exclude the ocurrence of closed cycles is to look for constitutions that allow for a common ranking.
    Keywords: overlapping coalitions, group structures, constitutions, stability, common ranking
    JEL: C72 C78 D85
    Date: 2018–09–05
  6. By: Stéphane Gonzalez (UJM - Université Jean Monnet [Saint-Étienne], GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique); Aymeric Lardon (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - CNRS - Centre National de la Recherche Scientifique - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur)
    Abstract: We provide an axiomatic characterization of the core of games in effectiveness form. We point out that the core, whenever it applies to appropriate classes of these games, coincides with a wide variety of prominent stability concepts in social choice and game theory, such as the Condorcet winner, the Nash equilibrium, pairwise stability, and stable matchings, among others. Our characterization of the core invokes the axioms of restricted non-emptiness, coalitional unanimity, and Maskin invariance together with a principle of independence of irrelevant states, and uses in its proof a holdover property echoing the conventional ancestor property. Taking special cases of this general characterization of the core, we derive new characterizations of the previously mentioned stability concepts.
    Keywords: Effectiveness function,core,axiomatization,holdover property,consistency
    Date: 2018
  7. By: Zachary Grossman (Department of Economics, Florida State University); Jonathan Pincus (School of Economics, University of Adelaide); Perry Shapiro (Department of Economics, University of California Santa Barbara); Duygu Yengin (School of Economics, University of Adelaide)
    Abstract: Land can be inefficiently allocated when attempts to assemble separately-owned parcels are frustrated by holdouts. Eminent domain can be used neither to gauge efficiency nor to determine adequate compensation. We characterize the least-inefficient class of direct mechanisms that are incentive compatible, self-financing, and protect the property-rights of participants. The second-best mechanisms, which we call Strong Pareto (SP), utilize a second-price auction among interested buyers, with a reserve sufficient to compensate fully all potential sellers, who are paid according to fixed and exhaustive shares of the winning buyer's offer. These mechanisms are strategy-proof (dominant-strategy incentive compatible), individually rational and self-financing. They generate higher social welfare in each problem compared to any other type of mechanism satisfying these properties.
    Keywords: Land assembly, assembly problems, complementary goods, hold-out; eminent domain, property rights, mechanism design, desirable properties, impossibility theorem, second-best characterization, SP mechanism, just compensation, public-private partnerships, incentive compatibility, strategy-proofness, individual rationality, budget-balance, self-nance
    Date: 2018–09
  8. By: Vitalik Buterin; Zoe Hitzig; E. Glen Weyl
    Abstract: We propose a design for philanthropic or publicly-funded seeding to allow (near) optimal provision of a decentralized, self-organizing ecosystem of public goods. The concept extends ideas from Quadratic Voting to a funding mechanism for endogenous community formation. Individuals make public goods contributions to projects of value to them. The amount received by the project is (proportional to) the square of the sum of the square roots of contributions received. Under the "standard model" this yields first best public goods provision. Variations can limit the cost, help protect against collusion and aid coordination. We discuss applications to campaign finance, open source software ecosystems, news media finance and urban public projects. More broadly, we offer a resolution to the classic liberal-communitarian debate in political philosophy by providing neutral and non-authoritarian rules that nonetheless support collective organization.
    Date: 2018–09

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