nep-des New Economics Papers
on Economic Design
Issue of 2019‒04‒01
three papers chosen by
Alex Teytelboym
University of Oxford

  1. Data Driven Regulation: Theory and Application to Missing Bids By Sylvain Chassang; Kei Kawai; Jun Nakabayashi; Juan Ortner
  2. Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best? By Cary Deck; Maroš Servátka; Steven Tucker
  3. Heterogeneous risk/loss aversion in complete information all-pay auctions By Chen, Zhuoqiong (Charlie); Ong, David; Segev, Ella

  1. By: Sylvain Chassang (New York University); Kei Kawai (U.C. Berkeley); Jun Nakabayashi (Kindai University); Juan Ortner (Boston University)
    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 compet- itive 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 equilib- rium 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. Keywords: missing bids, collusion, regulation, procurement.
    Keywords: missing bids, collusion, regulation, procurement
    Date: 2019–03
  2. By: Cary Deck (University of Alabama and Chapman University); Maroš Servátka (Macquarie Graduate School of Management and University of Economics in Bratislava); Steven Tucker (University of Waikato)
    Abstract: The bubble and burst pattern in asset market experiments is among the most replicable results in experimental economics. Numerous studies have searched for means to reduce this mispricing. Using controlled laboratory experiments, we compare mispricing in standard double auction markets to prices in two clock auctions. The double Dutch auction, shown to be more efficient than the double auction in commodity market experiments, does not eliminate bubbles. However, the English Dutch auction does yield prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in the common declining fundamental value environment.
    Keywords: Asset Markets, Experimental Economics, Institutional Design
    JEL: C91 D02 D14 G12
    Date: 2019
  3. By: Chen, Zhuoqiong (Charlie); Ong, David; Segev, Ella
    Abstract: We extend previous theoretical work on n-player complete information all-pay auctions to incorporate heterogeneous risk- and loss-averse utility functions. We provide sufficient and necessary conditions for the existence of equilibria with a given set of active players with any strictly increasing utility functions and characterize the players’ equilibrium mixed strategies. Assuming that players can be ordered by their risk aversion (player a is more risk-averse than player b, if whenever player b prefers a certain payment over a given lottery, so does player a), we find that in equilibrium, the more risk-averse players either bid higher than the less risk-averse players and win with higher ex-ante probability – or they drop out. Furthermore, while each player’s expected bid decreases with the other players’ risk aversion, her expected bid increases with her own risk aversion. Thus, increasing a player’s risk aversion creates two opposing effects on total expected bid. A sufficient condition for the total expected bid to decrease with a player’s risk aversion is that this player is relatively more risk-averse compared to the rest of the players. Our findings have important implications for the literature on gender differences in competitiveness and for gender diversity in firms that use personnel contests for promotions.
    Keywords: All-pay auction; Risk aversion; Loss aversion
    JEL: D44 D72 D81
    Date: 2017–06–01

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