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on Economic Design |
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Issue of 2019‒06‒17
eleven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Klenio Barbosa; Dakshina De Silva; Liyu Yang; Hisayuki Yoshimoto |
| Abstract: | This paper exploits a large-size auction experiment conducted by two Chinese Government Treasury security issuers -the Chinese Development Bank and the Export-Import Bank- to investigate whether Treasury securities should be sold through uniform or discriminatory auction mechanisms. Based on the outcomes of more than 300 Treasury securities issued through an alternating auction-rule market experiment, we find that auction outcome yield rates of the two auction formats are not statistically different, suggesting revenue equivalence. This equivalence is robust across different revenue measurements and participation behavior. |
| Keywords: | Treasury Security Auctions, Discriminatory Auctions, Uniform Auctions, Revenue Equivalence |
| JEL: | C58 D44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:267027285&r=all |
| By: | Paul Jusselin; Thibaut Mastrolia; Mathieu Rosenbaum |
| Abstract: | We consider an auction market in which market makers fill the order book during a given time period while some other investors send market orders. We define the clearing price of the auction as the price maximizing the exchanged volume at the clearing time according to the supply and demand of each market participants. Then we derive in a semi-explicit form the error made between this clearing price and the fundamental price as a function of the auction duration. We study the impact of the behavior of market takers on this error. To do so we consider the case of naive market takers and that of rational market takers playing a Nash equilibrium to minimize their transaction costs. We compute the optimal duration of the auctions for 77 stocks traded on Euronext and compare the quality of price formation process under this optimal value to the case of a continuous limit order book. Continuous limit order books are found to be usually sub-optimal. However, in term of our metric, they only moderately impair the quality of price formation process. Order of magnitude of optimal auction durations is from 2 to 10 minutes. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1906.01713&r=all |
| By: | Seres, G. (Tilburg University, TILEC); Pigon, Adam |
| Abstract: | Procuring authorities frequently use screening in order to mitigate risky bids. This study estimates the effect of bid screening and litigation on entry and bidding using a unique data set on highway construction procurement auctions in Poland. The market exhibits a screening method that ex post selects eligible offers. We demonstrate with an empirical model that this method disproportionately affects small firms and creates a barrier to entry. Our results suggest that screening increases bids by two channels. First, it directly inflates bids as well as decreasing entry. Second, in a competitive market, lower entry also inflates bids and prices. |
| Keywords: | procurement; auctions; market design; litigation |
| JEL: | H57 D44 L5 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiutil:78e45bf6-3a0a-46a0-9abd-78a8baa4e3ad&r=all |
| By: | Johannes Wachs; J\'anos Kert\'esz |
| Abstract: | Competing firms can increase profits by setting prices collectively, imposing significant costs on consumers. Such groups of firms are known as cartels and because this behavior is illegal, their operations are secretive and difficult to detect. Cartels feel a significant internal obstacle: members feel short-run incentives to cheat. Here we present a network-based framework to detect potential cartels in bidding markets based on the idea that the chance a group of firms can overcome this obstacle and sustain cooperation depends on the patterns of its interactions. We create a network of firms based on their co-bidding behavior, detect interacting groups, and measure their cohesion and exclusivity, two group-level features of their collective behavior. Applied to a market for school milk, our method detects a known cartel and calculates that it has high cohesion and exclusivity. In a comprehensive set of nearly 150,000 public contracts awarded by the Republic of Georgia from 2011 to 2016, detected groups with high cohesion and exclusivity are significantly more likely to display traditional markers of cartel behavior. We replicate this relationship between group topology and the emergence of cooperation in a simulation model. Our method presents a scalable, unsupervised method to find groups of firms in bidding markets ideally positioned to form lasting cartels. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1906.08667&r=all |
| By: | Anastasios Dosis (ESSEC Business School - Essec Business School) |
| Abstract: | This paper reconsiders the general informed principal model with unilateral private information and common values. First, it identifies some fundamental properties of the Rothschild-Stiglitz-Wilson (RSW) allocation (i.e., the undominated for the principal allocation within the set of incentive compatible and individually rational for the agent type by type allocations). Based on these properties: (i) it constructs a more robust, and perhaps simpler, proof of the "if part" of Theorem 1 (i.e., the main result) of Maskin and Tirole (1992), and, (ii) it establishes that if the principal is restricted to offering mechanisms in which only she makes announcements (e.g., direct revelation mechanisms), then the conclusion of that theorem holds even in environments in which the RSW allocation is not interim efficient relative to any non-degenerate beliefs. Second, it provides a sufficient condition that allows for the complete charac-terisation of the set of equilibrium allocations even in environments in which single-crossing is not satisfied. |
| Keywords: | Mechanism design,Informed principal,Rothschild-Stiglitz-Wilson allocation,Perfect Bayesian equilibrium |
| Date: | 2019–04–05 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02130454&r=all |
| By: | Anastasios Dosis (ESSEC Business School - Essec Business School) |
| Abstract: | A seller with perfect monopoly power trades an indivisible object with a buyer. Both the seller's and the buyer's valuations for the object depend on its quality, which is privately known by the seller. Moreover, the seller has perfect information about the buyer's valuation for each quality. Even though posting a fixed price is ex ante optimal, it might not be interim individually rational and hence not necessarily implementable. The set of interim optimal allocations is charac-terised by solving a parametric linear maximisation program. These allocations might differ from simple price-posting. If the seller offers a menu of contracts, then allocations that are not interim optimal can be supported as equilibrium allocations. However, this sub-optimality result seems not to be robust if there are at least two buyers who can counter-offer menus of contracts after the seller's offer. In that case, an allocation is an equilibrium allocation if and only if it is interim optimal. |
| Keywords: | Informed seller,Common values,Interim optimal trading |
| Date: | 2019–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-02130450&r=all |
| By: | Andrea Attar (CEIS & DEF University of Rome "Tor Vergata"); Eloisa Campioni (CEIS & DEF University of Rome "Tor Vergata"); Thomas Mariotti (Toulouse School of Economics, CNRS); Gwenael Piaser (IPAG Business School, Paris) |
| Abstract: | We study competing-mechanism games under exclusive competition: principals first simultaneously post mechanisms, then agents simultaneously choose to participate and communicate with at most one principal. In this setting, which is common to competing-auction and competitive-search applications, we develop two examples that question the relevance of the folk theorems for competing-mechanism games documented in the literature. The first example shows that there can exist pure-strategy equilibria in which some principal obtains a payoff below her min-max payoff, computed over all principals' decisions. Thus folk-theorem results may have to involve a bound on principals' payoffs that depends on the spaces of messages available to the agents, and not only on the players' available actions. The second example shows that even this nonintrinsic approach is misleading when agents' participation decisions are strategic: there can exist incentive-feasible allocations in which principals obtain payoffs above their min-max payoffs, computed over arbitrary spaces of mechanisms, but which cannot be supported in equilibrium. |
| Keywords: | Competing Mechanisms, Folk Theorems, Exclusive Competition |
| JEL: | D82 |
| Date: | 2019–06–06 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:460&r=all |
| By: | Nikolas Tsakas; Dimitrios Xefteris |
| Abstract: | A majority of independent voters wants to choose the alternative that better matches the state of the world, but may disagree on its identity due to private information. When we have an arbitrary number of alternatives and also sophisticated partisan voters exist in the electorate, the election of the correct alternative is a real challenge. Building upon McLennan (1998) and Barelli et al. (2017) we show that runoff voting -one of the most intuitive electoral systems- achieves asymptotically full information equivalence. That is, when the society is large, it can lead to the election of the correct alternative under fairly general assumptions regarding the information structure and partisans' preferences. |
| Keywords: | runoff voting; information aggregation; partisan voters; Condorcet jury theorem |
| JEL: | D71 D72 |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:09-2019&r=all |
| By: | Pablo A. Neme; Jorge Oviedo |
| Abstract: | For a many-to-one matching market where firms have strict and q-responsive preferences, we give a characterization of the strongly stable fractional matching set as the union of the convex hull of connected sets of stable matchings. |
| Date: | 2019–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1905.12500&r=all |
| By: | Makoto Hagiwara (PhD Student, Department of Industrial Engineering and Economics, Tokyo Institute of Technology, JAPAN) |
| Abstract: | We consider the implementation problem under incomplete information and private values. We investigate double implementability of (single-valued) mappings in dominant strategy equilibria and ex post equilibria. We call a mapping a "rule". We show that the notion of an ex post equilibrium is weaker than the notion of a dominant strategy equilibrium. Then, this double implementability notion is not trivial even under private values. We define a new strategic axiom that is stronger than "strategy-proofness", but weaker than "secure strategy-proofness". We call it "weak secure-strategy-proofness". We show that a rule is doubly implementable if and only if it is weakly securely-strategy-proof. |
| Keywords: | Double Implementation; Dominant Strategy Equilibrium; Ex Post Equilibrium; Weak Secure-strategy-proofness; Private Values |
| JEL: | C72 D71 D78 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:kob:dpaper:dp2019-13&r=all |
| By: | Tatsuyoshi Saijo (School of Economics and Management, Kochi University of Technology) |
| Abstract: | This paper shows that second thoughts are not an innocent device in our daily life, but is human wisdom that plays an important role in resolving problems such as social dilemmas. We design a simple mechanism to achieve Pareto efficiency in social dilemmas, and then compare the performance of this mechanism with and without second thoughts. First, second thoughts change the payoff structure of the game in favor of cooperation. Second, this mechanism is robust even when players deviate from a payoff maximizing behavior. |
| Keywords: | second thoughts, subgame perfection, social dilemma, cooperation, mechanism design |
| JEL: | C72 C92 D74 |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:kch:wpaper:sdes-2019-6&r=all |