nep-des New Economics Papers
on Economic Design
Issue of 2018‒11‒19
seven papers chosen by
Alex Teytelboym
University of Oxford

  1. A Theory of Auctions with Endogenous Valuations By Moldovanu, Benny
  2. How lotteries in school choice help to level the playing field By Bastek, Christian; Klaus, Bettina; Kübler, Dorothea
  3. Mechanism Design with Limited Commitment By Laura Doval; Vasiliki Skreta
  4. A Very Robust Auction Mechanism By Richard McLean; Andrew Postlewaite
  5. Equitable voting rules By Laurent Bartholdi; Wade Hann-Caruthers; Maya Josyula; Omer Tamuz; Leeat Yariv
  6. Should Straw Polls be Banned? By S. Nageeb Ali; Aislinn Bohren
  7. The Feedback Effect in Two-Sided Markets with Bilateral Investments By Moldovanu, Benny

  1. By: Moldovanu, Benny
    Abstract: We study the revenue maximizing allocation of m units among n symmetric agents that have unit demand and convex preferences over the probability of receiving an object. Such preferences are naturally induced by a game where the agents take costly actions that affect their values before participating in the mechanism. Both the uniform m + 1 price auction and the discriminatory pay-your-bid auction with reserve prices constitute symmetric revenue maximizing mechanisms. Contrasting the case with linear preferences, the optimal reserve price reacts to both demand and supply, i.e., it depends both on the number of objects m and on number of agents n. The main tool in our analysis is an integral inequality involving majorization, super-modularity and convexity due to Fan and Lorentz (1954).
    Date: 2018–10
  2. By: Bastek, Christian; Klaus, Bettina; Kübler, Dorothea
    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
  3. By: Laura Doval; Vasiliki Skreta
    Abstract: We develop a tool akin to the revelation principle for mechanism design with limited commitment. We identify a canonical class of mechanisms rich enough to replicate the payoffs of any equilibrium in a mechanism-selection game between an uninformed designer and a privately informed agent. A cornerstone of our methodology is the idea that a mechanism should encode not only the rules that determine the allocation, but also the information the designer obtains from the interaction with the agent. Therefore, how much the designer learns, which is the key tension in design with limited commitment, becomes an explicit part of the design. We show how this insight can be used to transform the designer's problem into a constrained optimization one: To the usual truthtelling and participation constraints, one must add the designer's sequential rationality constraint.
    Date: 2018–11
  4. By: Richard McLean (Department of Economics, Rutgers University); Andrew Postlewaite (Department of Economics, University of Pennsylvania)
    Abstract: A single unit of a good is to be sold by auction to one of many potential buyers. There are two equally likely states of the world. Potential buyers receive noisy signals of the state of the world. The accuracies of buyers ’signals may di¤er. A buyer’s valuation is the sum of a common value component that depends on the state and an idiosyncratic private value component independent of the state. The seller knows nothing about the accuracies of the signals or about buyers’ beliefs about the accuracies. It is common knowledge among buyers that the accuracies of the signals are conditionally independent and uniformly bounded below 1 and above 1=2, and nothing more. We demonstrate a modifi…ed second price auction that has the property that, for any " > 0; the seller’s expected revenue will be within " of the highest buyer expected value when the number of buyers is sufficiently large and buyers make undominated bids.
    Date: 2018–01–16
  5. By: Laurent Bartholdi; Wade Hann-Caruthers; Maya Josyula; Omer Tamuz; Leeat Yariv
    Abstract: A celebrated result in social choice is May's Theorem, providing the foundation for majority rule. May's crucial assumption of symmetry, often thought of as a procedural equity requirement, is violated by many choice procedures that grant voters identical roles. We show that a modification of May's symmetry assumption allows for a far richer set of rules that still treat voters equally, but have minimal winning coalitions comprising a vanishing fraction of the population. We conclude that procedural fairness can coexist with the empowerment of a small minority of individuals. Methodologically, we introduce techniques from discrete mathematics and illustrate their usefulness for the analysis of social choice questions.
    Date: 2018–11
  6. By: S. Nageeb Ali (Department of Economics, Penn State University); Aislinn Bohren (Department of Economics, University of Pennsylvania)
    Abstract: A Principal appoints a committee of partially informed experts to choose a policy. The experts' preferences are aligned with each other but conflict with hers. We study whether she gains from banning committee members from communicating or "deliberating" before voting. Our main result is that if the committee plays its preferred equilibrium and the Principal must use a threshold voting rule, then she does not gain from banning deliberation. We show using examples how she can gain if she can choose the equilibrium played by the committee, or use a non-anonymous or non-monotone social choice rule.
    Keywords: Information Aggregation, Committees, Deliberation, Collusion
    JEL: D7 D8
    Date: 2018–09–20
  7. By: Moldovanu, Benny
    Abstract: Agents in a finite two-sided market are matched assortatively, based on costly investments. Besides signaling privately known, complementary types, the investments also directly benefit the match partner. The bilateral external benefits induce a complex feedback cycle that amplifies the agents' signaling investments. Our main results quantify how the feedback effect depends on the numbers of competitors on both sides of the market. This yields detailed insights into the equilibria of two-sided matching contests with incomplete information, in particular for markets of small or intermediate size. It also allows us to shed some new light on the relationship between finite and continuum models of pre-match investment.
    Keywords: feedback effect; investment; Matching; signaling
    JEL: C78 D44 D82
    Date: 2018–10

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