nep-des New Economics Papers
on Economic Design
Issue of 2019‒04‒15
seven papers chosen by
Alex Teytelboym
University of Oxford

  1. Quadratic voting with multiple alternatives By Eguia, Jon; Immorlica, Nicole; Ligett, Katrina; Weyl, Glen; Xefteris, Dimitrios
  2. Affirmative Action in India via Vertical and Horizontal Reservations By Tayfun Sönmez; M. Bumin Yenmez
  3. Breaking Ties: Regression Discontinuity Design Meets Market Design By Abdulkadiroglu, Atila; Angrist, Joshua; Narita, Yusuke; Pathak, Parag A.
  4. Obviousness Around the Clock By Breitmoser, Yves; Schweighofer-Kodritsch, Sebastian
  5. Cooperative games on intersection closed systems and the Shapley value By Sylvain Béal; Issofa Moyouwou; Eric Rémila; Phillippe Solal
  6. Harsanyi power solutions for cooperative games on voting structures By Encarnación Algaba; Sylvain Béal; Eric Rémila; Phillippe Solal
  7. Dynamic IC and dynamic programming By Suehyun Kwon

  1. By: Eguia, Jon (Michigan State University, Department of Economics); Immorlica, Nicole (Microsoft); Ligett, Katrina (Hebrew University); Weyl, Glen (Microsoft and Princeton); Xefteris, Dimitrios (University Cyprus)
    Abstract: Consider the following collective choice problem: a society of budget-constrained agents faces multiple alternatives and wants to reach an e¢ cient decision (i.e. to Nash implement the utilitarian maximum). In this paper, we propose a budget-balanced vote-buying mechanism for this setting: for each alternative, every voter can cast any number of votes, x, in support or against it, by transferring an amount x2 to the rest of the voters; and the outcome is determined by the net vote totals. We prove that as the society grows large, in every equilibrium of the mechanism, each agent's transfer converges to zero, and the probability that the mechanism chooses the socially efficient outcome converges to one.
    Keywords: implementation; efficiency; mechanism design; quadratic voting; multiple alternatives
    JEL: D61 D71 D72
    Date: 2019–04–04
  2. By: Tayfun Sönmez (Boston College); M. Bumin Yenmez (Boston College)
    Abstract: Built into the country’s constitution, one of the world’s most comprehensive affirmative action programs exists in India. Government jobs and seats at publicly funded educational institutions are allocated through a Supreme Court-mandated procedure that integrates a meritocracy-based system with a reservation system that provides a level playing field for disadvantaged groups through two types of special provisions. The higher-level provisions, known as vertical reservations, are exclusively intended for backward classes that faced historical discrimination, and implemented on a “set aside” basis. The lower-level provisions, known as horizontal reservations, are intended for other disadvantaged groups (such as women, disabled, or the economically disadvantaged), and they are implemented on a “minimum guarantee” basis. We show that, the Supreme Court-mandated procedure suffers from at least four major deficiencies. First and foremost, it is not well-defined when candidates can qualify for multiple horizontal reservations, a phenomenon that has been increasingly more common in recent years. Moreover, while a candidate can never lose a position to a less meritorious candidate from her own group under this procedure, she can lose a position to a less meritorious candidate from a higher-privilege group. This loophole under the Supreme Court-mandated procedure causes widespread confusion in India, resulting in countless lawsuits, conflicting judgements on these lawsuits, and even defiance in some of its states. We propose an alternative procedure that resolves these two major deficiencies and two additional ones.
    Keywords: Market design, matching, affirmative action
    JEL: C78
    Date: 2018–05–15
  3. By: Abdulkadiroglu, Atila (Duke University); Angrist, Joshua; Narita, Yusuke (Yale University); Pathak, Parag A. (MIT)
    Abstract: Centralized school assignment algorithms must distinguish between applicants with the same preferences and priorities. This is done with randomly assigned lottery numbers, nonlottery tie-breakers like test scores, or both. The New York City public high school match illustrates the latter, using test scores, grades, and interviews to rank applicants to screened schools, combined with lottery tie-breaking at unscreened schools. We show how to identify causal effects of school attendance in such settings. Our approach generalizes regression discontinuity designs to allow for multiple treatments and multiple running variables, some of which are randomly assigned. Lotteries generate assignment risk at screened as well as unscreened schools. Centralized assignment also identifies screened school effects away from screened school cutoffs. These features of centralized assignment are used to assess the predictive value of New York City's school report cards. Grade A schools improve SAT math scores and increase the likelihood of graduating, though by less than OLS estimates suggest. Selection bias in OLS estimates is egregious for Grade A screened schools.
    Keywords: causal inference, natural experiment, local propensity score, instrumental variables, unified enrollment, school report card, school value added
    JEL: I21 C78 C13 C18 C21 C26
    Date: 2019–03
  4. By: Breitmoser, Yves (Bielefeld University); Schweighofer-Kodritsch, Sebastian (HU Berlin and WZB Berlin)
    Abstract: Li (2017) supports his theoretical notion of obviousness of a dominant strategy with experimental evidence that bidding is closer to dominance in the dynamic ascending-clock than the static second-price auction (private values). We replicate his experimental study and add three intermediate auction formats to decompose this behavioral improvement into cumulative effects of (1) seeing an ascending-price clock (after bid submission), (2) bidding dynamically on the clock and (3) getting drop-out information. Li\'s theory predicts dominance to become obvious through (2) dynamic bidding. We find no significant behavioral effect of (2). However, both (1) and (3) are highly significant.
    Keywords: ;
    Date: 2019–04–08
  5. By: Sylvain Béal (Université de Bourgogne Franche-Comté, CRESE); Issofa Moyouwou (Department of Mathematics, University of Yaounde I - Cameroon); Eric Rémila (Université de Saint-Etienne, Gate); Phillippe Solal (Université de Saint-Etienne, Gate)
    Abstract: A situation in which a finite set of agents can obtain certain payoffs by cooperation can be described by a cooperative game with transferable utility, or simply a TU-game. In the literature, various models of games with restricted cooperation can be found, in which only certain subsets of the agent set are allowed to form. In this article, we consider such sets of feasible coalitions that are closed under intersection, i.e., for any two feasible coalitions, their intersection is also feasible. Such set systems, called intersection closed systems, are a generalization of the convex geometries. We use the concept of closure operator for intersection closed systems and we define the restricted TU-game taking into account the limited possibilities of cooperation determined by the intersection closed system. Next, we study the properties of this restricted TU-game. Finally, we introduce and axiomatically characterize a family of allocation rules for games TU-games on intersection closed systems, which contains a natural extension of the Shapley value.
    Date: 2018–12
  6. By: Encarnación Algaba (Matemática Aplicada II and Instituto de Matemáticas de la Universidad de Sevilla, Escuela Superior de Ingenieros, Sevilla, Spain); Sylvain Béal (Université de Bourgogne Franche-Comté, CRESE); Eric Rémila (Université de Saint-Etienne, Gate); Phillippe Solal (Université de Saint-Etienne, Gate)
    Abstract: This paper deals with Harsanyi power solutions for cooperative games in which partial cooperation is based on specific union stable systems given by the winning coalitions derived from a voting game. This framework allows for analyzing new and real situations in which there exists a feedback between the economic influence of each coalition of agents and its political power. We provide an axiomatic characterization of the Harsanyi power solutions on the subclass of union stable systems arisen from the winning coalitions from a voting game when the influence is determined by a power index. In particular, we establish comparable axiomatizations, in this context, when considering the Shapley-Shubik power index, the Banzhaf index and the Equal division power index which reduces to the Myerson value on union stable systems. Finally, a new characterization for the Harsanyi power solutions on the whole class of union stable systems is provided and, as a consequence, a characterization of the Myerson value is obtained when the equal power measure is considered.
    Date: 2018–11
  7. By: Suehyun Kwon
    Abstract: This paper develops a dynamic programming method when the one-stage deviation principle in the sense of mechanism design literature doesn’t hold. The commonly used dynamic programming method is valid only if the one-stage deviation principle in the sense of mechanism design literature is satisfied; it doesn't hold in every model, and the one-stage deviation principle in the sense of repeated games does hold but requires the equilibrium strategy of every player off the equilibrium path and is impractical. The dynamic programming method developed in this paper requires transfinite induction, and therefore one needs to specify the stopping times for two dimensions.
    Keywords: dynamic programming, one-stage deviation, transfinite induction, stopping time
    Date: 2019

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