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on Economic Design |
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Issue of 2019‒03‒04
nine papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Markos Epitropou (Department of Electrical and Systems Engineering, University of Pennsylvania); Rakesh Vohra (Department of Economics, University of Pennsylvania) |
| Abstract: | We consider a principal who allocates an indivisible object among a finite number of agents who arrive on-line, each of whom prefers to have the object than not. Each agent has access to private information about the principal's payoff if he receives the object. The decision to allocate the object to an agent must be made upon arrival of an agent and is irreversible. There are no monetary transfers but he principal can inspect agents' reports at a cost and punish them. A novelty of this paper is a reformulation of this dynamic problem as a compact linear program. Using the formulation we characterize the form of the optimal mechanism and reduce the dynamic version of the inspection problem with identical distributions to an instance of the secretary problem with one fewer secretary and a modified value distribution. This reduction also allows us to derive a prophet inequality for the dynamic version of the inspection problem. |
| Keywords: | Dynamic mechanism design, stopping problems, costly verification |
| JEL: | C61 D44 D82 |
| Date: | 2019–02–18 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:19-002&r=all |
| By: | Auster, Sarah; Kos, Nenad; Piccolo, Salvatore |
| Abstract: | We study a model of optimal pricing where the right to propose a mechanism is determined endogenously: a privately informed buyer covertly invests to increase the probability of offering a mechanism. We establish the existence of equilibrium and show that higher types get to propose a mechanism more often than lower types allowing the seller to learn from the trading process. In any equilibrium, the seller either offers the price he would have offered if he was always the one to make an offer or randomises over prices. Pure strategy equilibria may fail to exist, even when types are continuously distributed. A full characterization of equilibria is provided in the model with two types, where notably the seller's profit is shown to be non-monotonic in the share of high-value buyers. |
| Keywords: | bargaining power; mechanism design; Optimal Pricing |
| JEL: | C72 D82 D83 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13542&r=all |
| By: | Daske, Thomas |
| Abstract: | This study explores mechanism design for networks of interpersonal relationships. Agents' social (i.e., altruistic or spiteful) preferences and private payoffs are all subject to asymmetric information; utility is (quasi-)linear, types are independent. I show that any network of at least three agents can resolve any allocation problem with a mechanism that is Bayesian incentive-compatible, ex-interim individually rational, and ex-post Pareto-efficient (also ex-post budget-balanced). By contrast, a generalized Myerson-Satterthwaite theorem is established for two agents. The central tool to exploit the asymmetry of information about agents' social preferences is "gamification": Resolve the agents' allocation problem with an efficient social-preference robust mechanism; ensure agents' participation with the help of a mediator, some network member, who complements that mechanism with an unrelated hawk-dove like game between the others, a game that effectively rewards (sanctions) strong (poor) cooperation at the expense (to the benefit) of the mediator. Ex interim, agents (and the mediator) desire this game to be played, for it provides them with a platform to live out their propensities to cooperate or compete. - A figurative example is a fund-raiser, hosted by the "mediator", complemented with awarding the best-dressed guest. |
| Keywords: | networks,social preferences,mechanisms,gamification,Coase theorem |
| JEL: | C70 D62 D64 D82 D85 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:193148&r=all |
| By: | Jeongwoo Lee (University of Florida); Jaeok Park (Yonsei University) |
| Abstract: | This paper analyzes a scenario in which two objects are sold in sequence at two second-price auctions. There are two bidders, and each bidder's valuations of the two objects are affiliated. Participating in each auction is costly. Bidders decide whether to enter each auction, observing their entry decisions in any previous auction. We study the properties of equilibria and provide a sufficient condition for their existence. Due to affiliation, a bidder's entering the first auction may signal his strong interest in the second object. Hence, a bidder with a higher valuation of the second object tends to participate in the first auction more aggressively in order to preempt the opponent's entry into the second auction. Because of this signaling motive, the sequential auction format can generate higher revenue in the first auction and lower revenue in the second auction than those obtained by the simultaneous counterpart. |
| Keywords: | Sequential auctions; participation cost; preemptive entry; signaling; |
| JEL: | D44 D82 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:yon:wpaper:2019rwp-141&r=all |
| By: | Sümeyra Atmaca; Koen Schoors (-) |
| Abstract: | We develop a new methodology to identify corruption in public procure- ment auctions with reserve prices and apply it to Russian public procure- ment auctions of gasoline in 2011-2013. We identify corrupt procurer-seller pairs by exploiting the variation in reserve prices. Since auction reserve prices are set by the procurer before the auction, they should be indepen- dent from the identity of the winning seller. We estimate reserve prices as a function of the local market price, contract, procurer and time controls, and procurer-seller fixed effects. A procurer-seller pair is labeled as poten- tially corrupt if its pair fixed effect is significantly larger than the average procurer fixed effect. Despite their reserve price overpricing, corrupt sell- ers face less competition in auctions organized by procurers with whom they form a corrupt pair and have a higher probability of wining these auc- tions. Auctions won by corrupt pairs exhibit higher final contract prices, leading to considerable welfare losses. The detrimental effect of reserve price manipulation on final prices is mitigated by higher competition and fully offset by electronic auctions with sufficient competition. |
| Keywords: | public procurement, corruption, regulation |
| JEL: | H57 H83 K42 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:19/961&r=all |
| By: | Enache, Andrea; Florens, Jean-Pierre |
| Abstract: | The first novelty of this paper is that we show global identification of the private values distribution in a sealed-bid third-price auction model using a fully nonparametric methodology. The second novelty of the paper comes from the study of the identification and estimation of the model using a quantile approach. We consider an i.i.d. private values environment with risk-averse bidders. In the first place, we consider the case where the risk-aversion parameter is known. We show that the speed of convergence in process of our nonparametric estimator produces at the root-n parametric rate and we explain the intuition behind this apparently surprising result. Next, we consider that the risk-aversion parameter is unknown and we locally identify it using exogenous variation in the number of participants. We extend our procedure to the case where we observe only the bids corresponding to the transaction prices, and we generalize the model so as to account for the presence of exogenous variables. The methodological toolbox used to analyse identification of the third-price auction model can be employed in the study of other games of incomplete information. Our results are interesting also from a policy perspective,as some authors recommend the use of the third-price auction format for certain Internet auctions. Moreover, we contribute to the econometric literature on auctions using a quantile approach. |
| Keywords: | structural nonparametric estimation; nonlinear inverse problems; global identification; functional convergence of estimators; third-price auction mode |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:26557&r=all |
| By: | Giuseppe Attanasi; Kene Boun My; Andrea Guido; Mathieu Lefevbre |
| Abstract: | There is robust evidence in the experimental economics literature studying decentralized forms to control monopoly power via trading institutions. This strand provides evidence showing that double-auction trading institutions do affect monopoly power. In addition, recent experimental evidence shows that trading institutions themselves can shape agents' market behaviour through the formation of anchors and reference points. We recreate experimentally five different double-auction market structures (perfect competition,perfect competition with quotas, cartel on price, cartel on price with quotas, and monopoly) in a within-subject experimental design, varying the order of markets implementation. We investigate whether monopoly power endures the formation of reference prices emerged in previously implemented market structures. Results from our classroom experiments suggest that i) prevailing prices in the first implemented market work as reference points in subsequent market structures, ii) the formation of reference points negatively impacts on monopolists' power in later market structures.. |
| Keywords: | Classroom Experiment, Monopoly, Perfect Competition, Double-Auction. |
| JEL: | D42 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2019-08&r=all |
| By: | Gualdani, Cristina; Sinha, Shruti |
| Abstract: | We consider the one-to-one matching models with transfers of Choo and Siow (2006) and Galichon and Salanié (2015). When the analyst has data on one large market only, we study identification of the systematic components of the agents’ preferences without imposing parametric restrictions on the probability distribution of the latent variables. Specifically, we provide a tractable characterisation of the region of parameter values that exhausts all the implications of the model and data (the sharp identified set), under various classes of nonparametric distributional assumptions on the unobserved terms. We discuss a way to conduct inference on the sharp identified set and conclude with Monte Carlo simulations. |
| Keywords: | One-to-One Matching; Transfers; Stability; Partial Identification; Nonparametric Identification; Linear Programming |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:33016&r=all |
| By: | Alistair Wilson |
| Abstract: | We analyze a dynamic matching mechanism developed for the UEFA Champions League, the largest and most-watched football club competition worldwide. First, we theoretically characterize the assignment rule developed by UEFA by solving a complex constrained assignment problem with a publicly verifiable draw. Then, using a structural model of the assignments and data from the UEFA Champions League 2004 and 2018 seasons we show that the constraints cause quantitatively large spillovers to unconstrained teams. Nevertheless, we conclude that the UEFA draw is close to a constrained-best in terms of fairness. Moreover, we find that it is feasible to substantially reduce the distortions by only marginally slacking the constraints. |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:pit:wpaper:6534&r=all |