nep-des New Economics Papers
on Economic Design
Issue of 2018‒11‒26
six papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Countering the Winner’s Curse: Optimal Auction Design in a Common Value Model By Dirk Bergemann; Benjamin Brooks; Stephen Morris
  2. Partially-Honest Nash Implementation: A Full Characterization By Lombardi, Michele; Yoshihara, Naoki
  3. Unified Versus Divided Enrollment in School Choice: Improving Student Welfare in Chicago By Battal Doğan; M. Bumin Yenmez
  4. When Does an Additional Stage Improve Welfare in Centralized Assignment? By Battal Doğan; M. Bumin Yenmez
  5. The Secret Behind The Tortoise and the Hare: Information Design in Contests By Alejandro Melo Ponce
  6. A Walrasian Theory of Sovereign Debt Auctions with Asymmetric Information By Harold L. Cole; Daniel Neuhann; Guillermo Ordonez

  1. By: Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: We characterize revenue maximizing mechanisms in a common value environment where the value of the object is equal to the highest of bidders’ independent signals. The optimal mechanism exhibits either neutral selection, wherein the object is randomly allocated at a price that all bidders are willing to pay, or advantageous selection, wherein the object is allocated with higher probability to bidders with lower signals. If neutral selection is optimal, then the object is sold with probability one by a deterministic posted price. If advantageous selection is optimal, the object is sold with probability less than one at a random price. By contrast, standard auctions that allocate to the bidder with the highest signal (e.g., the ?rst-price, second-price or English auctions) deliver lower revenue because of the adverse selection generated by the allocation rule: if a bidder wins the good, then he revises his expectation of its value downward. We further show that the posted price mechanism is optimal among those mechanisms that always allocate the good. A su?icient condition for the posted price to be optimal among all mechanisms is that there is at least one potential bidder who is omitted from the auction. Our qualitative results extend to more general common value environments where adverse selection is high.
    Keywords: Optimal auction, Common values, Maximum game, Posted price, Revenue equivalence, Adverse selection, Neutral selection, Advantageous selection
    JEL: C72 D44 D82 D83
    Date: 2018–11
  2. By: Lombardi, Michele; Yoshihara, Naoki
    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
  3. By: Battal Doğan; M. Bumin Yenmez
    Abstract: The Chicago Board of Education is implementing a centralized clearinghouse to assign students to schools for 2018-19 admissions. In this clearinghouse, each student can simultaneously be admitted to a selective and a nonselective school. We study this divided enrollment system and show that an alternative unified enrollment system, which elicits the preferences of students over all schools and assigns each student to only one school, is better for students when choice rules of schools are substitutable. Furthermore, we characterize the sources of inefficiency in the divided system.
    Keywords: Market design, school choice, unified enrollment.
    Date: 2018–11–18
  4. By: Battal Doğan; M. Bumin Yenmez
    Abstract: We study multistage centralized assignments to allocate scarce resources based on priorities in the context of school choice. We characterize the capacity-priority profiles of schools under which an additional stage of assignment may improve student welfare when the deferred acceptance algorithm is used at each stage. If the capacity-priority profile is acyclic, then no student prefers any subgame-perfect Nash equilibrium (SPNE) outcome of the 2-stage enrollment system to the truthful equilibrium outcome of the 1-stage enrolment system. If the capacity-priority profile is not acyclic, then an SPNE outcome of the 2-stage enrollment system may Pareto dominate the truthful equilibrium outcome of the 1-stage enrollment system.
    Date: 2018–11–18
  5. By: Alejandro Melo Ponce
    Abstract: I analyze the optimal information disclosure problem under commitment of a "contest designer" in a class of binary action contests with incomplete information about the abilities of the players. If the contest designer wants to incentivize the players to play in equilibrium a particular strategy profile, she can design an information disclosure rule, formally a stochastic communication mechanism, to which she will commit and then use to "talk" with the players. The main tool to carry out the analysis is the concept of Bayes Correlated Equilibrium recently introduced in the literature. I find that the optimal information disclosure rules involves private information revelation (manipulation), which is also cost-effective for the designer. Furthermore, the optimal disclosure rule involves asymmetric and in most cases correlated signals that convey only partial information about the abilities of the players.
    JEL: C72 C79 D44 D82 D83
    Date: 2018–11–20
  6. By: Harold L. Cole (Department of Economics, University of Pennsylvania); Daniel Neuhann (Department of Economics, Columbia University); Guillermo Ordonez (Department of Economics, University of Pennsylvania)
    Abstract: Sovereign bonds are highly divisible, usually of uncertain quality, and auctioned in large lots to a large number of investors. This leads us to assume that no individual bidder can affect the bond price, and to develop a tractable Walrasian theory of Treasury auctions in which investors are asymmetrically informed about the quality of the bond. We characterize the price of the bond for different degrees of asymmetric information, both under discriminatory-price (DP) and uniform-price (UP) protocols. We endogenize information acquisition and show that DP protocols are likely to induce multiple equilibria, one of which features asymmetric information, while UP protocols are unlikely to sustain equilibria with asymmetric information. This result has welfare implications: asymmetric information negatively affects the level, dispersion and volatility of sovereign bond prices, particularly in DP protocols.
    Date: 2017–05–01

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