nep-des New Economics Papers
on Economic Design
Issue of 2019‒08‒19
four papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. On Selecting the Right Agent By Geoffroy de Clippel; Kfir Eliaz; Daniel Fershtman; Kareen Rozen
  2. Multiple Applications, Competing Mechanisms, and Market Power By Albrecht, James; Cai, Xiaoming; Gautier, Pieter A.; Vroman, Susan
  3. Costless Information and Costly Verification: A Case for Transparency By Deniz Kattwinkel; Jan Knoepfle
  4. Dynamic Information Design with Diminishing Sensitivity Over News By Jetlir Duraj; Kevin He

  1. By: Geoffroy de Clippel; Kfir Eliaz; Daniel Fershtman; Kareen Rozen
    Abstract: Each period, a principal must assign one of two agents to some task. Profit is stochastically higher when the agent is qualified for the task. The principal cannot observe qualification. Her only decision is which of the two agents to assign, if any, given the public history of selections and profits. She cannot commit to any rule. While she maximizes expected discounted profits, each agent maximizes his expected discounted selection probabilities. We fully characterize when the principal's first-best payoff is attainable in equilibrium, and identify a simple strategy profile achieving this first-best whenever feasible. We propose a new refinement for dynamic mechanisms (without transfers) where the designer is a player, under which we show the principal's next-best, when the first-best is unachievable, is the one-shot Nash. We show how our analysis extends to variations on the game accommodating more agents, caring about one's own performance, cheap talk and losses.
    Keywords: Dynamic allocation, mechanism design without transfers, mechanism design without commitment
    JEL: D82 D86
    Date: 2019–08
  2. By: Albrecht, James (Georgetown University); Cai, Xiaoming (Tongji University); Gautier, Pieter A. (Vrije Universiteit Amsterdam); Vroman, Susan (Georgetown University)
    Abstract: We consider a labor market with search frictions in which workers make multiple applications and firms can post and commit to general mechanisms that may be conditioned both on the number of applications received and on the number of offers received by its candidate. When the contract space includes application fees, there exists a continuum of equilibria of which only one is socially efficient. In the inefficient equilibria, firms have market power that arises from the fact that the value of a worker’s application portfolio depends on what other firms offer, which allows individual firms to free ride and offer workers less than their marginal contribution. Finally, by allowing for general mechanisms, we are able to examine the sources of inefficiency in the multiple applications literature.
    Keywords: multiple applications, directed search, competing mechanisms, efficiency, market power
    JEL: C78 D44 D83
    Date: 2019–07
  3. By: Deniz Kattwinkel; Jan Knoepfle
    Abstract: A principal has to take a binary decision. She relies on information privately held by a completely biased agent. The principal cannot incentivize with transfers but can learn the agent's information at a cost. Additionally, the principal privately observes a signal correlated with the agent's type. Transparent mechanisms are optimal: unlike in standard results with correlation, the principal's payoff is the same as if her signal was public. They take a simple cut-off form: favorable signals ensure the agent's preferred action. Signals below this cut-off lead to the nonpreferred action unless the agent appeals. An appeal always triggers type verification.
    Keywords: Mechanism Design without Transfers, Costly Verification, Robust Mechanism Design, Transparency
    JEL: D61 D82 K40
    Date: 2019–07
  4. By: Jetlir Duraj; Kevin He
    Abstract: A benevolent sender communicates non-instrumental information over time to a Bayesian receiver who experiences gain-loss utility over changes in beliefs ("news utility"). We show how to inductively compute the optimal dynamic information structure for arbitrary news-utility functions. With diminishing sensitivity over the magnitude of news, contrary to piecewise-linear news-utility models, one-shot resolution of uncertainty is strictly suboptimal under commonly used functional forms. We identify additional conditions that imply the sender optimally releases good news in small pieces but bad news in one clump. By contrast, information structures featuring the opposite skewness - i.e., delivering bad news gradually - are never optimal. A sender lacking commitment power can only credibly convey partial good news when the receiver is sufficiently loss averse. With diminishing sensitivity but no loss aversion, the babbling equilibrium is essentially unique. Contrary to the commitment case, a sender without commitment may generate higher equilibrium news-utility for receivers with higher loss aversion.
    Date: 2019–07

This nep-des issue is ©2019 by Guillaume Haeringer and Alex Teytelboym. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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