nep-des New Economics Papers
on Economic Design
Issue of 2018‒10‒15
nine papers chosen by
Alex Teytelboym
University of Oxford

  1. Fairness and Efficiency for Probabilistic Allocations with Endowments By Federico Echenique; Antonio Miralles; Jun Zhang
  2. Heterogeneous Beliefs and School Choice Mechanisms By Adam Kapor; Christopher A. Neilson; Seth D. Zimmerman
  3. Organizing time banks: Lessons from matching markets By ANDERSSON, Tommy; CSEH, Ágnes; EHLERS, Lars; ERLANSON, Albin
  4. Shapley-like values without symmetry By Jacob North Clark; Stephen Montgomery-Smith
  5. Robust scoring rules By Tsakas, Elias
  6. Insider Trading with Penalties By Sylvain Carré; Pierre Collin-Dufresne; Franck Gabriel
  7. Why do voters elect less qualified candidates? By Mizuno, Nobuhiro; Okazawa, Ryosuke
  8. Blockchain, fractional ownership, and the future of creative work By Whitaker, Amy; Kräussl, Roman
  9. Farmland values and bidder behavior in first-price land auctions By Odening, Martin; Huettel, Silke; Croonenbroeck, Carsten

  1. By: Federico Echenique; Antonio Miralles; Jun Zhang
    Abstract: We propose to use endowments as a policy instrument in market design. Endowments give agents the right to enjoy certain resources. For example in school choice, one can ensure that low-income families have a shot at high-quality schools by endowing them with a chance of admission. Common policy objectives, such as walkzone or sibling placement can be achieved through endowments (arguably more transparently than via priorities). We introduce two new criteria in resource allocation problems with endowments. The first adapts the notion of justified envy to a model with endowments, while the second is based on market equilibrium. Using either criteria, we show that fairness (understood as the absence of justified envy) can be obtained together with efficiency and individual rationality.
    Keywords: efficiency, fairness and endowments
    JEL: D50 D63
    Date: 2018–09
  2. By: Adam Kapor; Christopher A. Neilson; Seth D. Zimmerman
    Abstract: This paper studies how welfare outcomes in centralized school choice depend on the assignment mechanism when participants are not fully informed. Using a survey of school choice participants in a strategic setting, we show that beliefs about admissions chances differ from rational expectations values and predict choice behavior. To quantify the welfare costs of belief errors, we estimate a model of school choice that incorporates subjective beliefs. We evaluate the equilibrium effects of switching to a strategy-proof deferred acceptance algorithm, and of improving households’ belief accuracy. Allowing for belief errors reverses the welfare comparison to favor the deferred acceptance algorithm.
    JEL: I20
    Date: 2018–09
  3. By: ANDERSSON, Tommy; CSEH, Ágnes; EHLERS, Lars; ERLANSON, Albin
    Abstract: A time bank is a group of people that set up a common platform to trade services among themselves. There are several well-known problems associated with this type of time banking, e.g., high overhead costs and difficulties to identify feasible trades. This paper constructs 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). The mechanism works on a domain of preferences where agents classify services as unacceptable and acceptable (and for those services agents have specific upper quotas representing their maximum needs).
    Keywords: Market design; time banking; priority mechanism; non-manipulability
    JEL: D82
    Date: 2018
  4. By: Jacob North Clark; Stephen Montgomery-Smith
    Abstract: Following the work of Lloyd Shapley on the Shapley value, and tangentially the work of Guillermo Owen, we offer an alternative non-probabilistic formulation of part of the work of Robert J. Weber in his 1978 paper "Probabilistic values for games." Specifically, we focus upon efficient but not symmetric allocations of value for cooperative games. We offer an alternative condition "reasonableness," and retain standard efficiency and linearity to replace the usual axioms. In the pursuit of the result, we discover properties of the linear maps that describe the allocations. This culminates in a special class of games for which any other map that is "reasonable, efficient" can be written as a convex combination of members of this special class of allocations, via an application of the Krein-Milman theorem.
    Date: 2018–09
  5. By: Tsakas, Elias (General Economics 1 (Micro))
    Abstract: We study elicitation of latent (prior) beliefs when the agent can acquire information via a costly attention strategy. We introduce a mechanism that simultaneously makes it strictly dominant to (a) not acquire any information, and (b) report truthfully. We call such a mechanism a robust scoring rule. Robust scoring rules are important for different reasons. Theoretically, they are crucial both for establishing that decision-theoretic models under uncertainty are testable. From an applied point of view, they are needed for eliciting unbiased estimates of population beliefs. We prove that a robust scoring rule exists under mild axioms on the attention costs. These axioms are shown to characterize the class of posterior-separable cost functions. Our existence proof is constructive, thus identifying an entire class of robust scoring rules. Subsequently, we show that we can arbitrarily approximate the agent's prior beliefs with a quadratic scoring rule. The same holds true for a discrete scoring rule. Finally, we show that the prior beliefs can be approximated, even when we are uncertain about the exact specification of the agent's attention costs.
    Keywords: belief elicitation, prior beliefs, rational inattention, hidden information costs, posterior-separability, Shannon entropy, population beliefs, testing decision-theoretic models
    JEL: C91 D81 D82 D83 D87
    Date: 2018–10–08
  6. By: Sylvain Carré (Swiss Finance Institute, EPFL - Ecole Polytechnique Fédérale de Lausanne); Pierre Collin-Dufresne (Swiss Finance Institute, EPFL - Ecole Polytechnique Fédérale de Lausanne); Franck Gabriel (Département de Mathématiques - EPFL - EPFL - Ecole Polytechnique Fédérale de Lausanne)
    Abstract: We consider a one-period Kyle (1985) framework where the insider can be subject to a penalty if she trades. We establish existence and uniqueness of equilibrium for virtually any penalty function when noise is uniform. In equilibrium, the demand of the insider and the price functions are in general non-linear and remain analytically tractable because the expected price function is linear. We use this result to investigate the trade off between price efficiency and "fairness": we consider a regulator that wants to minimise post-trade standard deviation for a given level of uninformed traders' losses. The minimisation is over the function space of penalties; for each possible penalty, our existence and uniqueness theorem allows to define unambiguously the post-trade standard deviation and the uninformed traders' losses that prevail in equilibrium. Optimal penalties are characterized in closed-form. They must increase quickly with the magnitude of the insider's order for small orders and become flat for large orders: in cases where the fundamental realizes at very high or very low values, the insider finds it optimal to trade despite the high penalty. Although such trades-if they occur-are costly for liquidity traders, they signal extreme events and therefore incorporate a lot of information into prices. We generalize this result in two directions by imposing a budget constraint on the regulator and considering the cases of either non-pecuniary or pecuniary penalties. In the first case, we establish that optimal penalties are a subset of the previously optimal penalties: the patterns of equilibrium trade volumes and prices is unchanged. In the second case, we also fully characterize the constrained efficient points and penalties and show that new patterns emerge in the demand schedules of the insider trader and the associated price functions.
    Keywords: Inside trader,Pareto optimality,Penalties,Regulation,Kyle model,Market micro-structure,Asymmetric information
    Date: 2018–09–19
  7. By: Mizuno, Nobuhiro; Okazawa, Ryosuke
    Abstract: Voters sometimes vote for seemingly less qualified candidates; the winners of elections are sometimes less competent than the losers in light of candidates' observable characteristics such as their past careers. To explain this fact, we develop a political agency model with repeated elections in which a voter elects a policy maker among candidates with different competency (valence) levels. We show that politicians' competency relates negatively with political accountability when the challenger in the future election is likely to be incompetent. When this negative relation exists, voters prefer to elect an incompetent candidate if they emphasize politicians' policy choices over their competency. The negative relation between competency and accountability is possible because voters cannot commit to future voting strategies. Furthermore, voters' private information about how they evaluate candidates' competency generates a complementary mechanism leading to the negative relation between competency and accountability. This mechanism implies that voters' anti-elitism can be rational ex post even if it is groundless in the first place.
    Keywords: Candidates' competency, Political agency, Repeated elections, Private information, Signaling
    JEL: D72 D82
    Date: 2018–09–27
  8. By: Whitaker, Amy; Kräussl, Roman
    Abstract: While record-making prices at art auctions receive headline news coverage, artists typically do not receive any direct proceeds from those sales. Early-stage creative work in any field is perennially difficult to value, but the valuation, reward, and incentivization for artistic labor are particularly fraught. A core challenge in studying the real return on artists' work is the extreme difficulty accessing data from when an artwork was first sold. Galleries keep private records that are difficult to access and to match to public auction results. This paper, for the first time, uses archivally sourced primary market records, for the artists Jasper Johns and Robert Rauschenberg. Although this approach restricts the size of the data set, this innovative method shows much more accurate returns on art than typical regression and hedonic models. We find that if Johns and Rauschenberg had retained 10% equity in their work when it was first sold, the returns to them when the work was resold at auction would have outperformed the US S&P 500 by between 2 and 986 times. The implication of this work opens up vast policy recommendations with regard to secondary art market sales, entrepreneurial strategies using blockchain technology, and implications about how we compensate creative work.
    Keywords: value creation,art market,property rights,blockchain,venture funding
    Date: 2018
  9. By: Odening, Martin; Huettel, Silke; Croonenbroeck, Carsten
    Keywords: Ag Finance and Farm Management, Research Methods/Econometrics/Stats, Demand and Price Analysis
    Date: 2018–06–20

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