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on Economic Design |
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Issue of 2019‒06‒10
seven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | We characterize revenue maximizing mechanisms in a common value environment where the value of the object is equal to the highest of bidders’ independent signals. If the object is optimally sold with probability one, then the optimal mechanism is simply a posted price, with the highest price such that every type of every bidder is willing to buy the object. A sufficient condition for the posted price to be optimal among all mechanisms is that there is at least one potential bidder who is omitted from the auction. If the object is optimally sold with probability less than one, then optimal mechanisms skew the allocation towards bidders with lower signals. This can be implemented via a modi?ed Vickrey auction, where there is a random reserve price for just the high bidder. The resulting allocation induces a “winner’s blessing,” whereby the expected value conditional on winning is higher than the unconditional expectation. By contrast, standard auctions that allocate to the bidder with the highest signal (e.g., the ?rst-price, second-price or English auctions) deliver lower revenue because of the winner’s curse generated by the allocation rule. Our qualitative results extend to more general common value environments where the winner’s curse is large. |
| Keywords: | Optimal auction, Common values, Maximum game, Posted price, Reserve price, Revenue equivalence |
| JEL: | C72 D44 D82 D83 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2147r&r=all |
| By: | Zhonghao Shui (Graduate School of Economics, Kyoto University) |
| Abstract: | This paper considers an auctioneer who has a non-monotonic utility function with a unique maximizer. The auctioneer is able to reject all bids over some amount by using rejection prices. We show that the optimal rejection price for such an auctioneer is lower than and equal to that maximizer in first-price and second-price sealed-bid auctions, respectively. Further, in each auction we characterize a necessary and sufficient condition that by using the optimal rejection price not only the auctioneer but also bidders can be better off, compared to a standard auction. Finally, we find that the auctioneer strictly prefers a first-price sealed-bid auction if he is risk-averse when his revenue is lower than the maximizer or if the distribution of revenues which are lower than the maximizer in a standard first-price sealed-bid auction is first-order stochastic dominant over the one in a standard second-price sealed-bid auction. |
| Keywords: | Auction, Rejection prices, Non-monotonic utility |
| JEL: | D44 D82 |
| Date: | 2019–04 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:1008&r=all |
| By: | Tomer Siedner |
| Abstract: | We consider the basic setup of one seller, one buyer, and one good, where the seller is risk averse, and characterize the mechanism that maximizes the seller's expected utility. In contrast to the risk-neutral case, where a single deterministic price is optimal, we show that in the risk averse case the optimal mechanism consists of a continuum of lotteries. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:huj:dispap:dp725&r=all |
| By: | Grenet, Julien (Paris School of Economics); He, Yinghua (Rice University); Kübler, Dorothea (WZB Berlin Social Science Center) |
| Abstract: | The matching literature commonly rules out that market design itself shapes agent preferences. Underlying this premise is the assumption that agents know their own preferences at the outset and that preferences do not change throughout the matching process. Under this assumption, a centralized matching market can often outperform a decentralized one. Using a quasi-experiment in Germany\'s university admissions, we provide evidence against this assumption. We study a centralized clearinghouse that implements the early stages of the university-proposing Gale-Shapley deferred-acceptance mechanism in real time, resembling a decentralized market with continuous offers, rejections, and acceptances. With data on the exact timing of every decision, we show that early offers are more likely to be accepted than (potential) later offers, despite early offers not being made by more desirable universities. Furthermore, early offers are only accepted after some time rather than immediately. These results and direct survey evidence are consistent with a model of information acquisition: it is costly for students to learn about universities and accepting a university that turns out to be inferior causes regret. We discuss and rule out some alternative hypotheses. Our findings motivate a hybrid mechanism that balances centralization and decentralization. By allowing sequential learning, it improves welfare, especially in markets with substantial learning costs. |
| Keywords: | centralized matching market; gale-shapley deferred acceptance mechanism; university admissions; early offers; information acquisition; |
| JEL: | C78 I23 D81 D83 |
| Date: | 2019–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:158&r=all |
| By: | Hakimov, Rustamdjan; Kübler, Dorothea |
| Abstract: | The paper surveys the experimental literature on matching markets. It covers house allocation, school choice, and two-sided matching markets such as college admissions. The main focus of the survey is on truth-telling and strategic manipulations by the agents, on the stability and efficiency of the matching outcome, as well as on the distribution of utility. |
| Keywords: | experiments,matching markets,survey |
| JEL: | C92 D83 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2019205&r=all |
| By: | Hitoshi Matsushima (University of Tokyo) |
| Abstract: | This study indicates that the improper uses of a public blockchain disable real-world governance in organizations and marketplaces. By using any basic application of smart contracts, such as escrow transactions, along with a revelation mechanism outside the blockchain, individuals can execute illegal cartel acts in a self-enforcing and non-judicial manner. Cartel members can then implement collective deviations without help from trusted intermediaries or any requirements on reputation or word-of-honor. We show that a first price auction is vulnerable to cartel threats even if the seller can hide bidders’ prices because bidders take a countermeasure to hidden prices by using blockchain. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf459&r=all |
| By: | Jaelle Scheuerman; Jason L. Harman; Nicholas Mattei; K. Brent Venable |
| Abstract: | In many real world situations, collective decisions are made using voting. Moreover, scenarios such as committee or board elections require voting rules that return multiple winners. In multi-winner approval voting (AV), an agent may vote for as many candidates as they wish. Winners are chosen by tallying up the votes and choosing the top-$k$ candidates receiving the most votes. An agent may manipulate the vote to achieve a better outcome by voting in a way that does not reflect their true preferences. In complex and uncertain situations, agents may use heuristics to strategize, instead of incurring the additional effort required to compute the manipulation which most favors them.In this paper, we examine voting behavior in multi-winner approval voting scenarios with complete information. We show that people generally manipulate their vote to obtain a better outcome, but often do not identify the optimal manipulation. Instead, voters tend to prioritize the candidates with the highest utilities. Using simulations, we demonstrate the effectiveness of these heuristics in situations where agents only have access to partial information. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1905.12104&r=all |