nep-des New Economics Papers
on Economic Design
Issue of 2019‒03‒25
eight papers chosen by
Alex Teytelboym
University of Oxford

  1. Understanding Preferences: "Demand Types", and the Existence of Equilibrium with Indivisibilities By Baldwin, Elizabeth; Klemperer, Paul
  2. Identification of Auction Models Using Order Statistics By Yao Luo; Ruli Xiao
  3. Data Driven Regulation: Theory and Application to Missing Bids By Sylvain Chassang; Kei Kawai; Jun Nakabayashi; Juan M. Ortner
  4. Inference for First-Price Auctions with Guerre, Perrigne, and Vuong's Estimator By Jun Ma; Vadim Marmer; Artyom Shneyerov
  5. Bulow-Klemperer-Style Results for Welfare Maximization in Two-Sided Markets By Moshe Babaioff; Kira Goldner; Yannai A. Gonczarowski
  6. Student-Project-Resource Matching-Allocation Problems: Game Theoretic Analysis By Yamaguchi, Tomoaki; Yahiro, Kentaro; Yokoo, Makoto
  7. Efficient Investments in the Implementation Problem By Kentaro Tomoeda
  8. The Virtuous Cycle of Agreement By Philippos Louis; Matias Núñez; Dimitrios Xefteris

  1. By: Baldwin, Elizabeth; Klemperer, Paul
    Abstract: An Equivalence Theorem between geometric structures and utility functions allows new methods for understanding preferences. Our classification of valuations into "Demand Types" incorporates existing definitions (substitutes, complements, "strong substitutes", etc.) and permits new ones. Our Unimodularity Theorem generalises previous results about when competitive equilibrium exists for any set of agents whose valuations are all of a "demand type". Contrary to popular belief, equilibrium is guaranteed for more classes of purely-complements, than of purely-substitutes, preferences. Our Intersection Count Theorem checks equilibrium existence for combinations of agents with specific valuations by counting the intersection points of geometric objects. Applications include matching and coalition-formation, and the "Product-Mix Auction" introduced by the Bank of England in response to the financial crisis.
    Keywords: Competitive Equilibrium; consumer theory; demand type; equilibrium existence; geometry; indivisible goods; Matching; product mix auction; product-mix auction; tropical geometry
    JEL: C62 D44 D50 D51
    Date: 2019–03
  2. By: Yao Luo; Ruli Xiao
    Abstract: Auction data often fail to record all bids or all relevant factors that shift bidder values. In this paper, we study the identification of auction models with unobserved heterogeneity (UH) using multiple order statistics of bids. Classical measurement error approaches require multiple independent measurements. Order statistics, by definition, are dependent, rendering classical approaches inapplicable. First, we show that models with nonseparable finite UH is identifiable using three consecutive order statistics or two consecutive ones with an instrument. Second, two arbitrary order statistics identify the models if UH provides support variations. Third, models with separable continuous UH are identifiable using two consecutive order statistics under a weak restrictive stochastic dominance condition. Lastly, we apply our methods to U.S. Forest Service timber auctions and find evidence of UH.
    Keywords: Unobserved Heterogeneity, Measurement Error, Finite Mixture, Multiplicative Separability, Support Variations, Deconvolution
    JEL: C14 D44
    Date: 2019–03–16
  3. By: Sylvain Chassang; Kei Kawai; Jun Nakabayashi; Juan M. Ortner
    Abstract: We document a novel bidding pattern observed in procurement auctions from Japan: winning bids tend to be isolated. There is a missing mass of close losing bids. This pattern is suspicious in the following sense: it is inconsistent with competitive behavior under arbitrary information structures. Building on this observation, we develop a theory of data-driven regulation based on “safe tests,” i.e. tests that are passed with probability one by competitive bidders, but need not be passed by non-competitive ones. We provide a general class of safe tests exploiting weak equilibrium conditions, and show that such tests reduce the set of equilibrium strategies that cartels can use to sustain collusion. We provide an empirical exploration of various safe tests in our data, as well as discuss collusive rationales for missing bids.
    JEL: C72 D44 H57 L51
    Date: 2019–03
  4. By: Jun Ma; Vadim Marmer; Artyom Shneyerov
    Abstract: We consider inference on the probability density of valuations in the first-price sealed-bid auctions model within the independent private value paradigm. We show the asymptotic normality of the two-step nonparametric estimator of Guerre, Perrigne, and Vuong (2000) (GPV), and propose an easily implementable and consistent estimator of the asymptotic variance. We prove the validity of the pointwise percentile bootstrap confidence intervals based on the GPV estimator. Lastly, we use the intermediate Gaussian approximation approach to construct bootstrap-based asymptotically valid uniform confidence bands for the density of the valuations.
    Date: 2019–03
  5. By: Moshe Babaioff; Kira Goldner; Yannai A. Gonczarowski
    Abstract: We consider the problem of welfare maximization in two-sided markets using simple mechanisms that are prior-independent. The seminal impossibility result of Myerson and Satterthwaite [1983] shows that even for bilateral trade, there is no feasible (IR, truthful and budget balanced) mechanism that has welfare as high as the optimal-yet-infeasible VCG mechanism, which attains maximal welfare but runs a deficit. On the other hand, the optimal feasible mechanism needs to be carefully tailored to the Bayesian prior, and is extremely complex, eluding a precise description. In this paper we present Bulow-Klemperer-style results to circumvent these hurdles in double-auction market settings. We suggest using the Buyer Trade Reduction (BTR) mechanism, a variant of McAfee's mechanism, that is feasible and simple (in particular, it is deterministic, prior-independent, and anonymous). First, in the setting where the buyers' and sellers' values are sampled i.i.d. from the same distribution, we show that for any such market of any size, BTR with one additional buyer whose value is sampled from the same distribution has expected welfare at least as high as the optimal in the original market. We then move to a more general setting where the buyers' values are sampled from one distribution, and the sellers' from another, focusing on the case where the buyers' distribution first-order stochastically dominates the sellers' distribution. We present bounds on the number of buyers that, when added, cause BTR in the augmented market to achieve welfare at least as high as the optimal in the original market. Our lower bounds extend to a large class of mechanisms. In addition, we present positive results about the usefulness of pricing at a sample for welfare maximization in two-sided markets under the above two settings, which to the best of our knowledge are the first sampling results in this context.
    Date: 2019–03
  6. By: Yamaguchi, Tomoaki; Yahiro, Kentaro; Yokoo, Makoto
    Abstract: In this work, we consider a three sided student-project-resource matching-allocation problem, in which students have preferences on projects, and projects on students. While students are many-to-one matched to projects, indivisible resources are many-to-one allocated to projects whose capacities are thus endogenously determined by the sum of resources allocated to them. Traditionally, this problem is divided into two separate problems: (1) resources are allocated to projects based on some expectations (resource allocation problem), and (2) students are matched to projects based on the capacities determined in the previous problem (matching problem). Although both problems are well-understood, unless the expectations used in the first problem are correct, we obtain a suboptimal outcome. Thus, it is desirable to solve this problem as a whole without dividing it in two. In this paper, we first show that a stable (i.e., fair and nonwasteful) matching does not exist in general (nonwastefulness is a criterion related to efficiency). Then, we show that no strategyproof mechanism satisfies fairness and very weak efficiency requirements. Given this impossibility result, we develop a new strategyproof mechanism that strikes a good balance between fairness and efficiency, which is assessed by experiments.
    Keywords: two-sided matching, mechanism design, resource allocation, strategyproof
    JEL: C78 D61 D63
    Date: 2019–02–14
  7. By: Kentaro Tomoeda (Economics Discipline Group, University of Technology Sydney)
    Abstract: This paper identifies a condition for an efficient social choice rule to be fully implementable when we take into account investment efficiency. To do so, we extend the standard implementation problem to include endogenous ex ante and ex post investments. In our problem, the social planner aims to achieve efficiency in every equilibrium of a dynamic game in which agents strategically make investments before and after playing the mechanism. Our main theorem shows that a novel condition commitment-proofness is sufficient and necessary for an efficient social choice rule to be implementable in subgame-perfect equilibria. The availability of ex post investments is crucial in our model: there is no social choice rule that is efficient and implementable in subgame-perfect equilibria without ex post investments. We also show that our positive result continues to hold in the incomplete information setting.
    Keywords: investment efficiency; full implementation; mechanism design; ex ante investment
    JEL: D44 D82 C78
    Date: 2018–12–18
  8. By: Philippos Louis; Matias Núñez; Dimitrios Xefteris
    Abstract: Collective choice mechanisms are used by groups to reach decisions in the presence of diverging preferences. But can the employed mechanism affect the degree of post-decision actual agreement (i.e. preference homogeneity) within a group? And if yes, which are the features of the choice mechanisms that matter? Since it is difficult to address these questions in natural settings, we employ a theory-driven experiment where, after the group collectively decides on an issue, individual preferences can be properly elicited. We find that the use of procedures that promote apparent consensus with an outcome (i.e. agreement in manifest behaviors) generate substantially higher levels of actual agreement compared to outcome-wise identical mechanisms that push subjects to exaggerate their differences.
    Keywords: implementation, mechanism design, consensus, agreement, congruence, experiment, endorsements
    JEL: D71 D72
    Date: 2019–03

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