|
on Economic Design |
|
Issue of 2019‒09‒02
seven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Daniel Lehmann |
| Abstract: | Many-to-many matching with contracts is studied in the framework of revealed preferences. All preferences are described by choice functions that satisfy natural conditions. Under a no-externality assumption individual preferences can be aggregated into a single choice function expressing a collective preference. In this framework, a two-sided matching problem may be described as an agreement problem between two parties: the two parties must find a stable agreement, i.e., a set of contracts from which no party will want to take away any contract and to which the two parties cannot agree to add any contract. On such stable agreements each party's preference relation is a partial order and the two parties have inverse preferences. An algorithm is presented that generalizes algorithms previously proposed in less general situations. This algorithm provides a stable agreement that is preferred to all stable agreements by one of the parties and therefore less preferred than all stable agreements by the other party. The number of steps of the algorithm is linear in the size of the set of contracts, i.e., polynomial in the size of the problem. The algorithm provides a proof that stable agreements form a lattice under the two inverse preference relations. Under additional assumptions on the role of money in preferences, agreement problems can describe general two-sided markets in which goods are exchanged for money. Stable agreements provide a solution concept, including prices, that is more general than competitive equilibria. They satisfy an almost one price law for identical items. The assignment game can be described in this framework and core elements of an assignment game are the stable agreements. |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1908.08823&r=all |
| By: | Josue Ortega |
| Abstract: | In cake-cutting, strategy-proofness is a very costly requirement in terms of fairness: for n=2 it implies a dictatorial allocation, whereas for n > 2 it requires that one agent receives no cake. We show that a weaker version of this property recently suggested by Troyan and Morril, called non-obvious manipulability, is compatible with the strong fairness property of proportionality, which guarantees that each agent receives 1/n of the cake. Both properties are satisfied by the leftmost leaves mechanism, an adaptation of the Dubins - Spanier moving knife procedure. Most other classical proportional mechanisms in literature are obviously manipulable, including the original moving knife mechanism. Non-obvious manipulability explains why leftmost leaves is manipulated less often in practice than other proportional mechanisms. |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1908.02988&r=all |
| By: | Rene van den Brink (Vrije Universiteit Amsterdam); Dinko Dimitrov (Saarland University); Agnieszka Rusinowska (Paris School of Economics) |
| Abstract: | We study the issue of assigning weights to players that identify winning coalitions in plurality voting democracies. For this, we consider plurality games which are simple games in partition function form such that in every partition there is at least one winning coalition. Such a game is said to be precisely supportive if it is possible to assign weights to players in such a way that a coalition being winning in a partition implies that the combined weight of its members is maximal over all coalitions in the partition. A plurality game is decisive if in every partition there is exactly one winning coalition. We show that decisive plurality games with at most four players, majority games with an arbitrary number of players, and almost symmetric decisive plurality games with an arbitrary number of players are precisely supportive. Complete characterizations of a partition's winning coalitions are provided as well. |
| Keywords: | plurality game, plurality voting, precise support, simple game in partition function form, winning coalition |
| JEL: | C71 D62 D72 |
| Date: | 2019–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20190062&r=all |
| By: | Albrecht, James; Cai, Xiaoming; Gautier, Pieter A.; Vroman, Susan |
| 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: | competing mechanisms; directed search; efficiency; market power; multiple applications |
| JEL: | C78 D44 D83 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13912&r=all |
| By: | Costa, Carlos Eugênio da; Lima, Lucas Alves Estevam de |
| Abstract: | Do the Revelation and Taxation Principles hold for multi-person households? We provide a positive answer to the former and a negative to the latter if the household decision process is such that no mechanism can lead to inefficient choices. This unconditional version of Chiappori’s (1988) collective approach, offers a household model which can be used in a standard mechanism design approach. Keywords: Collective Approach; Revelation Principle; Taxation Principle. JEL Codes: D13; H21; H31. |
| Date: | 2019–08–23 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:epgewp:808&r=all |
| By: | Jason Allen; Robert Clark; Brent Hickman; Eric Richert |
| Abstract: | Bank resolution is costly. In the United States, the Federal Deposit Insurance Corporation (FDIC) typically resolves failing banks by auction. If a bank is failing, healthy banks are encouraged to compete at auction to buy it. This results in a cash transfer from the FDIC to the buyer; the failing bank then continues under new ownership. The FDIC tries to minimize these transfers by holding competitive auctions. The main feature of these auctions is that they are scoring auctions. First, healthy banks place bids that can differ along multiple dimensions. These are scored based on their estimated costs. Second, to foster competition, bidders are encouraged to submit multiple bids, even though only one bid can win. This paper proposes a methodology for analyzing auction environments where bids are ranked according to multiple attributes but there is uncertainty about the scoring rule used to evaluate them. We use this framework to estimate the cost to the FDIC of having an opaque scoring rule. We find that the FDIC could reduce costs of resolution by around 17 percent by removing uncertainty. |
| Keywords: | Econometric and statistical methods; Financial Institutions |
| JEL: | D44 G21 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:19-30&r=all |
| By: | Caio Waisman; Harikesh S. Nair; Carlos Carrion; Nan Xu |
| Abstract: | Advertisers that engage in real-time bidding (RTB) to display their ads commonly have two goals: learning their optimal bidding policy and estimating the expected effect of exposing users to their ads. Typical strategies to accomplish one of these goals tend to ignore the other, creating an apparent tension between the two. This paper exploits the economic structure of the bid optimization problem faced by advertisers to show that these two objectives can actually be perfectly aligned. By framing the advertiser's problem as a multi-armed bandit (MAB) problem, we propose a modified Thompson Sampling (TS) algorithm that concurrently learns the optimal bidding policy and estimates the expected effect of displaying the ad while minimizing economic losses from potential sub-optimal bidding. Simulations show that not only the proposed method successfully accomplishes the advertiser's goals, but also does so at a much lower cost than more conventional experimentation policies aimed at performing causal inference. |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1908.08600&r=all |