nep-des New Economics Papers
on Economic Design
Issue of 2018‒10‒29
five papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Partially-honest Nash implementation: a full characterization By Michele Lombardi; Naoki Yoshihara
  2. Equilibrium selection in interdependent value auctions By Elnaz Bajoori; Dries Vermeulen
  3. Strictly sincere best responses under approval voting and arbitrary preferences By Carlos Alós-Ferrer; Johannes Buckenmaier
  4. What is wrong with IRV? By Stensholt, Eivind
  5. An Auction Story: How Simple Bids Struggle with Uncertainty By Jörn C. Richstein; Casimir Lorenz; Karsten Neuhoff

  1. By: Michele Lombardi (University of Glasgow); Naoki Yoshihara (School of Economics and Management, Kochi University of Technology)
    Abstract: A partially-honest individual is a person who follows the maxim, "Do not lie if you do not have to" to serve your material interest. By assuming that the mechanism designer knows that there is at least one partially-honest individual in a society of n 3 individuals, a social choice rule (SCR) that can be Nash implemented is termed partially-honestly Nash implementable. The paper offers a complete characterization of the n-person SCRs that are partially-honestly Nash implementable. It establishes a condition which is both necessary and sufficient for the partially-honest Nash implementation. If all individuals are partially-honest, then all SCRs that satisfy the property of unanimity are partially-honestly Nash implementable. The partially-honest Nash implementation of SCRs is examined in a variety of environments.
    Keywords: Nash implementation, pure strategy Nash equilibrium, partial-honesty, Condition μ
    JEL: C72 D71
    Date: 2018–10
  2. By: Elnaz Bajoori (University of Bath); Dries Vermeulen
    Abstract: In second-price auctions with interdependent values, bidders do not necessarily have dominant strategies. Moreover, such auctions may have many equilibria. In order to rule out the less intuitive equilibria, we define the notion of distributional strictly perfect equilibrium (DSPE) for Bayesian games with infinite type and action spaces. This equilibrium is robust against arbitrary small perturbations of strategies. We apply DSPE to a class of symmetric second-price auctions with interdependent values and show that the efficient equilibrium defined by Milgrom \cite{Milgrom81} is a DSPE, while a class of less intuitive, inefficient, equilibria introduced by Birulin \cite{Birulin2003} is not.
    Date: 2017–12
  3. By: Carlos Alós-Ferrer; Johannes Buckenmaier
    Abstract: Approval voting allows voters to support as many candidates as they wish. One advantage of the method is that voters have weak or no incentives to vote insincerely. However, the exact meaning of this statement depends on how the voters' preferences over candidates are extended to sets. We show that, under a combination of standard, well-established assumptions on the extended preferences, voters will always have a strictly sincere best response (that is, a best response ballot such that every approved candidate is strictly preferred to every disapproved one) given the ballots of other voters. The result holds for arbitrary preferences over candidates, allowing for indifferences but covering the extreme cases of dichotomous or strict preferences. As a corollary, we show that the classical strategy-proofness result for the case of dichotomous preferences on alternatives (Brams and Fishburn, 1978) holds for a larger class of preferences on sets than originally assumed.
    Keywords: Approval voting, manipulation, preferences among sets, strict sincerity
    JEL: C72 D71 D72
    Date: 2018–10
  4. By: Stensholt, Eivind (Dept. of Business and Management Science, Norwegian School of Economics)
    Abstract: Struggles over the single-seat preferential election method IRV, Instant Runoff Voting, (a.k.a. AV, Alternative Vote or RCV, Ranked-Choice Voting) go on in many arenas: legislatures, courts, websites, and scholarly journals. Monotonicity failures, i.e. elections (preference distributions) that may allow the startling tactical voting of Pushover or its reverse, has come to the forefront. An analysis of 3-candidate elections concludes that monotonicity failures, while not rare, are hard to predict and risky to exploit; it also explains the scarcity of evidence for effects on election results. A more unfortunate possibility is the No-Show accident; the number of ballots with preference order XYZ grows beyond a critical size and cause Z to win instead of Y. An analysis concludes that this must happen often enough to justify a modification of the rules. Pictograms and constellation diagrams are visualization tools that organize the set of possible elections efficiently for the analysis, which obtains explicit classification of elections where Pushover or a No-Show accident may occur or may already have occurred, and of bounds for the number of voters that must be involved. The analysis takes place in close contact with two frameworks for preferential election methods, one mathematical and one legal/political; these frameworks are themes for two survey sections.
    Keywords: Instant Runoff Voting; Monotonicity failures; No-Show accident; Pictograms; Constellation Diagrams
    JEL: C00 D72
    Date: 2018–10–22
  5. By: Jörn C. Richstein; Casimir Lorenz; Karsten Neuhoff
    Abstract: Short-term electricity markets are key to an efficient production by generation units. We develop a two-period model to assess different bidding formats to determine for each bidding format the optimal bidding strategy of competitive generators facing price-uncertainty. We compare the results for simple bidding, block bidding and multi-part bidding and find that even under optimal simple and block bidding generators face the risk of ex-post suboptimal solutions, whereas in multi-part bidding these do not occur. This points to efficiency gains of multi-part bidding in the presence of uncertainty in electricity markets.
    Keywords: market design, electricity markets, bidding formats, auctions
    JEL: D44 Q48 L94
    Date: 2018

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