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on Economic Design |
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Issue of 2019‒09‒16
ten papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Satoru Fujishige; Zaifu Yang |
| Abstract: | We study a general barter market in which every agent is initially endowed with several inherently indivisible items and wishes to exchange with other agents. There is no medium of exchange like money. Agents have general preferences over bundles of items and may acquire several items. It is well-known that the core of such an economy is typically empty. We propose a new but more general notion of core called a Markovian core. A Markovian core allocation is individually rational, but Pareto-efficient and stable against any possible coalition deviation by comparison with their current assignments instead of their initial endowments. We show that the market has always a nonempty strict Markovian core through a decentralized Pareto-improvement process. |
| Keywords: | Decentralized market, barter market, indivisibility, efficiency, stability, Markovian core. |
| JEL: | C62 D72 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:19/11&r=all |
| By: | Xu Lang; Zaifu Yang |
| Abstract: | We examine the implementation of reduced-form allocation rules in mechanism design problems. To handle the problem, we adopt a conic approach which uses a lift-and-project method to construct a projection cone and find its finite generators. This results in a set of implementable reduced forms for implementation. We then characterize projection cones for several typical mechanism design problems including single-item auctions, bilateral trade, compromise, and multiple-item auctions with group capacity constraints. We find that the implementation condition in general has a linear characterization by a class of sign functions, which is larger and richer than the well-known class of characteristic functions found by Border. These results admit meaningful economic interpretations. |
| Keywords: | Implementation, Reduced-form rules, Auction, Bilateral trade, Mechanism design, Total unimodularity. |
| JEL: | D44 C65 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:19/12&r=all |
| By: | Hitoshi Matsushima (University of Tokyo); Shunya Noda (University of British Columbia) |
| Abstract: | We investigate the general mechanism design problems in which agents take ex-ante hidden actions (or investments) that influence state distribution. We show that the variety of action choices drastically shrinks the set of mechanisms that induce targeted actions in the sense that there is a one-to-one tradeoff between the dimensionality of action space and that of payment rules with which the targeted action profile is taken in an equilibrium. This result comprehends the observations made by previous works. When agents can take unilateral deviations to change the state distribution in various directions, we have equivalence properties with respect to ex-post payoffs, payments, and revenues. In particular, the pure-VCG mechanism, the simplest form of the canonical VCG mechanism, becomes the only mechanism that induces an efficient action profile. Contrarily, the popular pivot mechanism generically fails to induce efficient actions, even when the action space is one-dimensional. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf464&r=all |
| By: | Adam Pigoñ; Gyula Seres |
| 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 inates bids as well as decreasing entry. Second, in a competitive market, lower entry also inates bids and prices. |
| Keywords: | Procurement, Auctions, Market Design, Litigation |
| JEL: | H57 D44 L5 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:ibt:wpaper:wp082019&r=all |
| By: | Hugo Hopenhayn; Maryam Saeedi |
| Abstract: | This paper considers the design of an optimal rating system, in a market with adverse selection. We address two critical questions about rating design: First, given a number of categories, what are the criteria for setting the boundaries between them? Second, what are the gains from increasing the number of categories? A rating system helps reallocate sales from lower- to higher-quality producers, thus mitigating the problem of adverse selection. We focus on two main sources of market heterogeneity that determine the extent and effect of this reallocation: the distribution of firm qualities and the responsiveness of sellers' supply to prices. We provide a simple characterization for the optimal rating system as the solution to a standard k-means clustering problem, and discuss its connection to supply elasticity and the skewness of firm qualities. Our results show that a simple two-tier rating can achieve a large share of full information surplus. Additionally, we characterize the conflicting interests of consumers and producers in the design of a rating system. |
| JEL: | D21 D60 D82 L11 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26221&r=all |
| By: | Dinard van der Laan; Zaifu Yang |
| Abstract: | A seller has several heterogeneous indivisible items like tickets to sell over time before a deadline. These items become worthless after the deadline. Buyers arrive sequentially and randomly and have their own private valuations over items. Each buyer may acquire more than one item. We formulate this as an incentive compatible revenue maximization problem and characterize optimal allocation policies and derive various properties. |
| Keywords: | Revenue Maximization, Random and Sequential Assignment, Heterogeneity |
| JEL: | C61 D21 D82 |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:19/13&r=all |
| By: | Nathalie Gimenes; Emmanuel Guerre |
| Abstract: | The paper proposes a sieve quantile regression approach for first-price auctions with symmetric risk-neutral bidders under the independent private value paradigm. It is first shown that a private value quantile regression model generates a quantile regression for the bids. The private value quantile regression can be easily estimated from the bid quantile regression and its derivative with respect to the quantile level. A new local polynomial technique is proposed to estimate the latter over the whole quantile level interval. Plug in estimation of functionals is also considered, as needed for the expected revenue or the case of CRRA risk-averse bidders, which is amenable to our framework. A quantile regression analysis to USFS timber is found more appropriate than the homogenized bid methodology and illustrates the contribution of each explanatory variables to the private value distribution. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1909.05542&r=all |
| By: | Shingo Takagi (Hokkaido University, Hokkaido, Japan); Nobuhiro Hosoe (National Graduate Institute for Policy Studies, Tokyo, Japan) |
| Abstract: | In this paper, we develop a structural auction model and quantify the effects of policy measures aiming to enhance competition in the Japanese retail power market. We employ a theoretical model that incorporates asymmetries between the incumbent and entrants in terms of both the cost and information structures, where the costs of the former are assumed common knowledge, and empirically estimate the structural parameters characterizing their cost distributions using public power procurement data. We then conduct counterfactual simulations to quantify two competition-promoting policy measures: a bid preference program for entrants, and an increase in the number of potential bidders. We take a parametric approach to estimate the structural model successfully in contrast to a nonparametric approach that previous studies took. Our simulation results show that these procompetitive measures would barely increase participation by potential entrants but would elicit more aggressive incumbent bidding behavior. Further, a modest bid-preferential rate would improve welfare and reduce the probability of realizing inefficient allocations associated with a costly winning bidder. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:ngi:dpaper:19-18&r=all |
| By: | Cary Deck (University of Alabama; Chapman University); James J. Murphy (Department of Economics, University of Alaska Anchorage) |
| Abstract: | This paper examines two previously unexplored techniques for increasing charitable giving, both motivated by the contest literature. One is a fixed bonus that is paid to the organization receiving the most donations, akin to an all-pay auction. The other is a raffle-based bonus, akin to a Tullock contest. These two techniques are compared to a one-to-one matching program and a baseline condition in a within-subject laboratory experiment. The results reveal that all three bonus techniques lead to similar increases in donations to organizations eligible for the promotion. However, when only some organizations are eligible, the increases in giving to eligible organizations are primarily driven by a reallocation of donations away from ineligible organizations. |
| Keywords: | experimental economics, Charitable Giving, Contests, All-pay Auction, Donation Matching, Laboratory Experiment, philanthropy |
| JEL: | C9 D6 D7 D9 L3 H4 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ala:wpaper:2018-06&r=all |
| By: | Melissa Boyle (Department of Economics, College of the Holy Cross); Justin Svec (Department of Economics, College of the Holy Cross) |
| Abstract: | Auction houses employ in-house art experts to assess the value of objects that will potentially be offered for sale. Items that will be placed on the auction block are first published in catalogs with the experts' estimates of the objects' valuations. For each item to be auctioned, the catalog provides an upper- and lower-bound estimate of the object's market value. This paper examines whether the roundness of those estimates is related to the likelihood that the item was sold and its eventual hammer price. We find that rounder lower estimates reduce the likelihood that the item is sold and, if it is sold, the hammer price is lower. The roundness of the upper estimate seems to have no impact on the auction outcome. |
| Date: | 2019–09 |
| URL: | http://d.repec.org/n?u=RePEc:hcx:wpaper:1908&r=all |