nep-des New Economics Papers
on Economic Design
Issue of 2019‒01‒21
five papers chosen by
Alex Teytelboym
University of Oxford

  1. Contract design with limited commitment By Gretschko, Vitali; Wambach, Achim
  2. Selling Complementary Goods: Information and Products By Suehyun Kwon
  3. Generalizing mechanism design theory to a case where agents' types are adjustable By Wu, Haoyang
  4. The Olson conjecture for discrete public goods By Nöldeke, Georg; Peña, Jorge
  5. The Impact of Heterogeneous Signals on Stock Price Predictability in a Strategic Trade Model By Winter, Christoph

  1. By: Gretschko, Vitali; Wambach, Achim
    Abstract: We consider the problem of a principal who wishes to contract with a privately informed agent and is not able to commit to not renegotiating any mechanism. That is, we allow the principal, after observing the outcome of a mechanism to renegotiate the resulting contract without cost by proposing a new mechanism any number of times. We provide a general characterization of renegotiation-proof states of such a renegotiation. The proposed solution concept provides an effective and easy-to-use tool to analyze contracting problems with limited commitment. We apply the solution concept to a setting with a continuous type space, private values and non-linear contracts. We find that the optimal contracts for the principal are pooling and satisfy a "no-distortionat-the-bottom" property.
    Keywords: Principal-Agent models,renegotiation,commitment,Coase-conjecture
    JEL: C72 C73 C78 D82
    Date: 2018
  2. By: Suehyun Kwon
    Abstract: This paper studies optimal mechanisms for selling complementary goods sequentially. The seller starts with private information, has limited commitment and offers in the first period a menu of information structures on the value of the second-period product. Fully revealing the seller type in the first period makes the second period a standard adverse selection problem, and fully revealing the buyer type in the first period makes the second period an information design problem. Among properties of equilibria, all types of seller must pool in every equilibrium if certain first-order stochastic dominance and independence conditions are satisfied.
    Keywords: information design, dynamic informed-principal problem, interdependent values, limited commitment, Myerson-Satterthwaite
    Date: 2018
  3. By: Wu, Haoyang
    Abstract: In mechanism design theory, a designer would like to implement a desired social choice function which specifies her favorite outcome for each possible profile of all agents' types. Since the designer does not know each agent's private type, what she can do is to construct a mechanism and choose an outcome after observing a profile of agents' strategies. There is a dilemma in the sense that even if the designer is not satisfied with some outcome, she has to obey the mechanism designed by herself and announce this outcome. In this paper, we generalize the mechanism design theory to a case where the designer can take some action to actively adjust agents' private types, and yield a more favorite outcome. After defining a series of notions such as adjustable types, optimal adjustment cost and profitably Bayesian implementability, we propose that the traditional notion of Bayesian incentive compatibility does not hold in this generalized case. Finally, we construct a model to illustrate that the auctioneer can obtain an expected profit greater than what she obtains in the traditional optimal auction.
    Keywords: Mechanism design; Optimal auction; Bayesian Nash implementation.
    JEL: D71
    Date: 2018–12–24
  4. By: Nöldeke, Georg; Peña, Jorge
    Abstract: We consider the private provision of a public good with non-refundable binary contributions. A fixed amount of the good is provided if and only if the number of contributors reaches an exogenous threshold. The threshold, the group size, and the identical cost of contributing to the public good are common knowledge. Our main result shows that the maximal probability of reaching the threshold (and thereby obtaining the public good) which can be supported in a symmetric equilibrium of this participation game is decreasing in group size. This generalizes a well-known result for the volunteer’s dilemma – in which the threshold is one – to arbitrary thresholds and thereby confirms a conjecture by Olson for the class of participation games under consideration. Further results characterize the limit when group size goes to infinity and provide conditions under which the expected number of contributors is decreasing or increasing in group size.
    Keywords: Participation games; Private provision of public goods; Group-size effects; Olson conjecture
    Date: 2018–11
  5. By: Winter, Christoph (University of Basel)
    Abstract: Generalizing the idea that price momentum can be explained by dierent levels of uncertainty inherent in the information structure, we implement signal-specic dierences in uncertainty in a Kyle type model of strategic trading. We derive the equilibrium in a single-auction setting as well as a two-trading-period model. We show that the two-period equilibrium supports price patterns like momentum and reversal/under- and over-reaction without relying on any additional behavioral assumptions. Furthermore, the two-period setting can be extended to a multiple- trading-period equilibrium model with very similar equilibrium conditions to the original sequential auction equilibrium proposed by Kyle (1985), while preserving the price pattern of the two-period model.
    Keywords: Market structure; asset pricing; market efficiency; asymmetric information; equilibrium
    JEL: D43 D82 G12 G15
    Date: 2018–07–16

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