nep-des New Economics Papers
on Economic Design
Issue of 2018‒12‒10
six papers chosen by
Alex Teytelboym
University of Oxford

  1. Countering the Winner's Curse: Optimal Auction Design in a Common Value Model By Bergemann, Dirk; Brooks, Benjamin A; Morris, Stephen
  2. Stable Constitutions By Daeyoung Jeong; Semin Kim
  3. Information Nudges and Self Control By Mariotti, Thomas; Schweizer, Nikolaus; Szech, Nora; von Wangenheim, Jonas
  4. The Shapley Value, Proper Shapley Value, and Sharing Rules for Cooperative Ventures By Rene (J.R.) van den Brink; Rene Levinsky; Miroslav Zeleny
  5. Unanimity and Local Incentive Compatibility By Miho Hong; Semin Kim
  6. On Incentive Compatible, Individually Rational Public Good Provision Mechanisms By Kunimoto, Takashi; Zhang, Cuiling

  1. By: Bergemann, Dirk; Brooks, Benjamin A; Morris, Stephen
    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 first-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 sufficient 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: advantageous selection; Adverse Selection; common values; maximum game; neutral selection; Optimal auction; posted price; revenue equivalence
    JEL: C72 D44 D82 D83
    Date: 2018–11
  2. By: Daeyoung Jeong (New York University Abu Dhabi); Semin Kim (Yonsei University)
    Abstract: This study identifies a set of stable constitutions. A constitution is a pair of voting rules (f, F) where f is for the choice of final outcome, and F is for the decision on the change of a voting rule from the given rule f. A constitution is stable if any possible alternative rule does not get enough votes to replace the given rule f under the rule F. We fully characterize the set of interim stable constitutions among anonymous voting rules. We also characterize the properties of the interim stable constitutions among general weighted majority rules.
    Keywords: Weighted majority rules, decision rules, self-stability
    JEL: C72 D02 D72 D82
    Date: 2018–11
  3. By: Mariotti, Thomas; Schweizer, Nikolaus; Szech, Nora; von Wangenheim, Jonas
    Abstract: A present-biased consumer has to make sequential consumption decisions under no commitment. Consumption is enjoyable in the short term but potentially harmful in the long term. The likelihood of harmful future consequences hinges on the consumer's type. While the distribution of types is common knowledge, the consumer's individual type is initially unknown. We study information design in this setting, varying how much a consumer learns about his type via an information nudge. We first consider a mechanism designer who is benevolent in the sense that his interests are aligned with the consumer's. We find that there always exists an optimal incentive-compatible persuasion mechanism that is of cutoff type, either recommending consumption or abstinence, and we provide a full characterization of this information nudge for an arbitrary distribution of types. Under a stronger bias for the present, the target group of the nudge who receives a credible signal to abstain must be tightened. We compare this information nudge with the optimal information structure if expected consumption should be minimized, and if it should be maximized. The first may be the goal of a health authority, whereas the latter may be preferred by a lobbyist.
    Keywords: Information Design; Information Nudge; Present-Biased Preferences; SelfControl
    JEL: C73 D82
    Date: 2018–04
  4. By: Rene (J.R.) van den Brink (VU University, Amsterdam); Rene Levinsky (Economics Institute, Praha); Miroslav Zeleny (Charles University, Praha)
    Abstract: Moulin (1987) studies the equal and proportional sharing rule for a special class of cooperative games that he calls joint venture games. Proportionality is an important principle in allocation problems. Besides some special cases, it is not obvious how proportionality should be applied in cooperative TU-games. Such special cases, where proportionality is obvious, are inessential games and cooperative joint venture games. In this paper, we discuss an explicit axiom that shows that proper Shapley values can be seen as an appropriate way to express proportionality in value allocation in cooperative TU-games. We characterize positive proper Shapley values by affine invariance and an axiom that requires proportional allocation according to the individual singleton worths in generalized joint venture games. As a counterpart, we show that affine invariance and an axiom that requires equal allocation of the surplus in generalized joint venture games, characterize the positive part of the Shapley value among the single-valued solutions.
    Keywords: Equity principle; Cooperative venture game; Shapley value; proper Shapley value
    JEL: C71
    Date: 2018–11–16
  5. By: Miho Hong (Yonsei University); Semin Kim (Yonsei University)
    Abstract: We study the relationship between unanimity and local incentive constraints of deterministic social choice functions (or voting mechanisms) . We consider a standard Bayesian environment where agents have private and strict preference orderings on a finite set of alternatives. We show that with independent and generic priors, locally ordinal Bayesian incentive compatibility of a social choice function combined with unanimity implies the tops-only property. Also, assuming unanimity invokes the sufficiency of local incentive constraints for full incentive constraints. Furthermore, unanimity helps our results hold in a broad class of domains | a few of its constituents being the unrestricted domain, the single-peaked domain, the single-dipped domain and some other connected domains.
    Keywords: Unanimity, Incentive compatibility, Local incentive compatibility, Tops-only property, Connected domains
    JEL: C72 D01 D02 D72 D82
    Date: 2018–11
  6. By: Kunimoto, Takashi (School of Economics, Singapore Management University); Zhang, Cuiling (School of Economics, Singapore Management University)
    Abstract: This paper characterizes mechanisms satisfying Bayesian incentive compatibility (BIC) and interim individual rationality (IIR) in the classical public good provision problem. Many papers in the literature obtain the results in the so-called standard model of ex ante identical agents with a continuous, closed interval of types. Although the standard model and more generally a continuum type space are widely used in the literature, it is nonetheless an abstraction of reality. Given that the public good provision problem has occupied a central application in the theory of mechanism design, we propose a "stress test" for the results in the standard model by subjecting them to a fi nite discretization over the standard model. The main contribution of this paper is that many of the known results gained within the standard continuum type space also hold when it is replaced by a discrete type space.
    Keywords: Budget balance; decision efficiency; incentive compatibility; individual rationality; mechanisms; public goods
    JEL: C72 D78 D82
    Date: 2018–11–20

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