nep-des New Economics Papers
on Economic Design
Issue of 2019‒01‒28
nine papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Auctions vs. Negotiations: Optimal Selling Mechanism with Endogenous Bidder Values By Mengxi Zhang
  2. A Common-Value Auction with State-Dependent Participation By Stephan Lauermann; Asher Wolinsky
  3. Auction Design by an Informed Seller: The Optimality of Reserve Price Signaling By Xin Zhao
  4. Minimum price equilibrium in the assignment market By Yu Zhou; Shigehiro Serizawa
  5. The Dimensions of Consensus By Benny Moldovanu; Alex Gershkov; Xianwen Shi
  6. The Multiplier Effect in Two-Sided Markets with Bilateral Investments By Benny Moldovanu; Deniz Dizdar; Nora Szech
  7. Manipulated Electorates and Information Aggregation By Mehmet Ekmekci; Stephan Lauermann
  8. Measuring the External Stability of the One-to-One Matching Generated by the Deferred Acceptance Algorithm By Saglam, Ismail
  9. The Success of the Deferred Acceptance Algorithm under Heterogenous Preferences with Endogenous Aspirations By Saglam, Ismail

  1. By: Mengxi Zhang
    Abstract: This paper studies the design of the revenue maximizing selling mechanism in a scenario where bidders can make costly investments upfront to enhance their valuations. Unlike the case where bidders’ values are exogenously fixed, here it may be profitable for the seller to discriminate among ex ante symmetric bidders. I first identify a sufficient and almost necessary condition under which symmetric auctions are optimal. When this condition fails, the optimal selling mechanism may be discriminatory. I further find that the optimal mechanism in general follows a structure which I call a threshold mechanism. Two extreme examples of the threshold mechanism are symmetric auctions and sequential negotiations. In general, any threshold mechanism can be implemented by a dynamic selling scheme which alternately utilizes auctions and negotiations.
    Keywords: Mechanism Design; R&D Investment; Endogenous Bidder Values; Favoritism
    JEL: D44 D82
    Date: 2018–11
  2. By: Stephan Lauermann; Asher Wolinsky
    Abstract: This paper analyzes a common-value, first-price auction with state-dependent participation. The number of bidders, which is unobservable to them, depends on the true value. For exogenously given participation patterns that involve many bidders in each state, the bidding equilibrium may be of a "pooling" type---with high probability, the winning bid is the same across states and is below the ex-ante expected value---or of a "partially separating" type---with no significant atoms in the winning bid distribution and an expected winning bid increasing in the true value. Which of these forms will arise is determined by the likelihood ratio at the top of the signal distribution and the participation across states. When the state-dependent participation is endogenized as the strategic solicitation by an informed seller who bears a small cost for each solicited bidder, an equilibrium of the separating type always exists and is unique of this type; for certain signal distributions there also exist equilibria of the pooling type.
    Keywords: Search, Auctions, Adverse Selection
    JEL: C78 D83
    Date: 2018–12
  3. By: Xin Zhao (Economics Discipline Group, University of Technology Sydney)
    Abstract: This paper studies mechanism design by a seller privately informed of the quality of an indivisible object. The privacy of the seller’s information matters for mechanism design: selecting a mechanism that maximizes the seller’s profit when her information is public is not incentive compatible for the seller when her information is private, as a lower-quality seller has an incentive to mimic a higher-quality seller. I show that reserve prices are the least costly device to separate higher-quality sellers from lower-quality ones. In equilibria that maximize the expected profit of every type of the seller among all separating equilibria, the lowest-quality seller adopts her public-information optimal mechanism, and each higher-quality seller adopts a mechanism that differs from her public-information optimal mechanism only in that the reserve prices are higher.
    Keywords: Mechanism design; informed principal; reserve price; signaling
    JEL: D44 D82
    Date: 2018–10–06
  4. By: Yu Zhou; Shigehiro Serizawa
    Abstract: We investigate an assignment market where multiple objects are assigned, together with associated payments, to a group of agents with unit demand preferences. Preferences over bundles, the pairs of (object, payment), accommodate income effects. Among all (Walrasian) equilibria in such a market, there is one supported by the coordinate-wise minimum prices, the minimum price equilibrium (MPE). We propose a price adjustment process, "the Serial Vickrey process," that finds an MPE in a finite number of steps. The Serial Vickrey process introduces objects one by one, and on the basis of the structural properties of MPE, the "Serial Vickrey sub-process" sequentially finds an MPE for k+1 objects by using an MPE for k objects. In the Serial Vickrey process, instead of revealing the whole preference, each agent only reports finitely many "indifference prices." We also discuss the application of the Serial Vickrey process to calibrate agents' utility functions in the quantitative analysis of housing market research in the assignment model.
    Date: 2019–01
  5. By: Benny Moldovanu; Alex Gershkov; Xianwen Shi
    Abstract: We study a multi-dimensional collective decision under incomplete information. Agents have Euclidean preferences and vote by simple majority on each issue (dimension), yielding the coordinate-wise median. Judicious rotations of the orthogonal axes - the issues that are voted upon - lead to welfare improvements. If the agents' types are drawn from a distribution with independent marginals then, under weak conditions, voting on the original issues is not optimal. If, in addition, the marginals are identical, then voting first on the total sum and next on the differences is often welfare superior to voting on the original issues. We also provide various lower bounds on incentive efficiency: in particular, if agents' types are drawn from a log-concave density with symmetric marginals, a second-best voting mechanism attains at least 88% of the first-best efficiency.
    Keywords: multi-dimensional voting , welfare , bundling
    JEL: D82 D71
    Date: 2018–07
  6. By: Benny Moldovanu; Deniz Dizdar; Nora Szech
    Abstract: Agents in a finite two-sided market are matched assortatively, based on costly investments. Besides signaling private, complementary types, investments generate direct benefits for partners. We explore quantitative properties of the equilibrium investment behavior. The bilateral external benefits induce an investment multiplier effect. This multiplier effect depends in a complex way on agents’ uncertainty about their own rank and about the types and investments of potential partners. We characterize how the multiplier effect hinges on market size, and how it interacts with other important factors such as the costs of investment and the signaling incentives induced by competition.
    Keywords: two-sided matching, signaling, investment, multiplier effect
    JEL: C78 D44 D82
    Date: 2018–07
  7. By: Mehmet Ekmekci; Stephan Lauermann
    Abstract: We study the aggregation of dispersed information in elections in which turnout may depend on the state. State-dependent turnout may arise from the actions of a biased and informed "election organizer." Voters are symmetric ex ante and prefer policy a in state α and policy b in state β, but the organizer prefers policy a regardless of the state. Each recruited voter observes a private signal about the unknown state but does not learn the turnout. First, we characterize how the outcomes of large elections depend on the turnout pattern across states. In contrast to existing results for large elections, there are equilibria in which information aggregation fails whenever there is an asymmetry in turnout; information aggregation is only guaranteed in all equilibria if turnout is state independent. Second, when the turnout is the result of costly voter recruitment by a biased organizer, the organizer can ensure that its favorite policy a is implemented with high probability independent of the state as the voter recruitment cost vanishes. Moreover, information aggregation will fail in all equilibria. The critical observation is that a vote is more likely to be pivotal for the decision if turnout is smaller, leading to a systematic bias of the decision toward the low-turnout state.
    Keywords: Voting, Information Aggregation
    JEL: C70 D80
    Date: 2019–01
  8. By: Saglam, Ismail
    Abstract: In this paper, we consider a one-to-one matching model where the population expands with the arrival of a man and a woman. Individuals in this population are matched, before and after the expansion, according to a version of the deferred acceptance algorithm (Gale and Shapley, 1962) where men propose and women reject or (tentatively or permanently) accept. Using computer simulations of this model, we study how the percentage of matches disrupted (undisrupted) with the expansion of the population is affected when the initial size of the population and the size of correlation in the preferences of individuals change.
    Keywords: One-to-one matching; deferred acceptance; stability; external stability
    JEL: C63 C78
    Date: 2019–01–15
  9. By: Saglam, Ismail
    Abstract: In this paper, we consider a one-to-one matching model with two phases; an adolescence phase where individuals meet a number of dates and learn about their aspirations, followed by a matching phase where individuals are matched according to a version of Gale and Shapley's (1962) deferred acceptance (DA) algorithm. Using simulations of this model, we study how the likelihoods of matching and divorce, and also the balancedness and the speed of matching associated with the outcome of the DA algorithm are affected by the size of correlation in the preferences of individuals and by the frequency individuals update their aspirations in the adolescence phase.
    Keywords: Mate search; one-to-one matching; stability; agent-based simulation
    JEL: C63 C78
    Date: 2019–01–15

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