nep-des New Economics Papers
on Economic Design
Issue of 2018‒12‒24
four papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Equitable Voting Rules By Bartholdi, Laurent; Hann-Caruthers, Wade; Josyula, Maya; Tamuz, Omer; Yariv, Leeat
  2. Expectations-Based Loss Aversion in Common-Value Auctions: Extensive vs. Intensive Risk By Benjamin Balzer; Antonio Rosato
  3. A Pigouvian Approach to Congestion in Matching Markets By He, Yinghua; Magnac, Thierry
  4. Competition in two sided markets with congestion By Swapnil Sharma

  1. By: Bartholdi, Laurent; Hann-Caruthers, Wade; Josyula, Maya; Tamuz, Omer; Yariv, Leeat
    Abstract: A celebrated result in social choice is May's Theorem (May, 1952), 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.
    Keywords: equity; Finite Groups; May's Theorem; Social Choice; Voting rules
    JEL: C60 D71 D72
    Date: 2018–11
  2. By: Benjamin Balzer (Economics Discipline Group, University of Technology Sydney); Antonio Rosato (Economics Discipline Group, University of Technology Sydney)
    Abstract: We analyze the behavior of expectations-based loss-averse bidders in frist-price and second-price common-value auctions. Highlighting the distinction between the uncertainty bidders face over whether they win the auction (extensive risk) and that over the value of the prize conditional on winning (intensive risk), we show that loss-averse bidders react differently to these different kinds of risk. In particular, the intensive risk pushes bidders to behave less aggressively in a common-value environment compared to one with private values. Yet, despite this "precautionary biddinging" effect, in equilibrium bidders can be exposed to the "winner's curse". We consider two alternative specifcations for how bidders assess outcomes as either gains or losses. Under narrow bracketing, bidders experience gains and losses separately over whether they receive the prize and how much they pay. Under broad bracketing, instead, bidders assess gains and losses over their net surplus. With narrow bracketing, first-price auctions expose bidders to less intensive risk and yield a higher expected revenue than second-price auctions, while the opposite result might hold with broad bracketing.
    Keywords: Reference-Dependent Preferences; Loss Aversion; Common-Value Auctions; Winner?s Curse
    JEL: D03 D44 D81 D82
    Date: 2018–10–18
  3. By: He, Yinghua (Toulouse School of Economics); Magnac, Thierry (University of Toulouse I)
    Abstract: Recruiting agents, or "programs" costly screen “applicants” in matching processes, and congestion in a market increases with the number of applicants to be screened. To combat this externality that applicants impose on programs, application costs can be used as a Pigouvian tax. Higher costs reduce congestion by discouraging applicants from applying to certain programs; however, they may harm match quality. In a multiple-elicitation experiment conducted in a real-life matching market, we implement variants of the Gale-Shapley Deferred-Acceptance mechanism with different application costs. Our experimental and structural estimates show that a (low) application cost effectively reduces congestion without harming match quality.
    Keywords: Gale-Shapley Deferred Acceptance Mechanism, costly preference formation, screening, stable matching, congestion, matching market place
    JEL: D78 D50 D61 I21
    Date: 2018–11
  4. By: Swapnil Sharma (Indira Gandhi Institute of Development Research)
    Abstract: Two sided markets involve two groups of agents who interact via "platforms". This paper analyses competition in a two sided market with congestion. The existing literature's on pricing mechanisms of two-sided markets has concluded that pricing mechanism depends on the following three factors: relative size of cross group externalities, fixed price or per transaction charge by platform, and single homing or multiple homing of agents. This paper extends the analysis by including the effect of congestion on pricing mechanisms in a two sided market. It concludes that in the case of single homing of agents, profits of the platform increase due to congestion if the agents have a low tolerance level, whereas in the case of multi homing, profits of the platform increase due to congestion if the agents have a high tolerance level.
    Keywords: Network externalities, Congestion
    JEL: L10 L11 L14 D43
    Date: 2018–11

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