nep-des New Economics Papers
on Economic Design
Issue of 2019‒09‒30
six papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Evidence Reading Mechanisms By Frédéric Koessler; Eduardo Perez
  2. Two-Sided Matching with (almost) One-Sided Preferences By Guillaume Haeringer; Vincent Iehlé
  3. Almost Mutually Best in Matching Markets: Rank-Fairness and Size of the Core By Christopher Kah; Flip Klijn; Markus Walzl
  4. Arrow, Hausdorff, and Ambiguities in the Choice of Preferred States in Complex Systems By T. Erber; M. J. Frank
  5. istinguishing Incentive from Selection Effects in Auction-Determined Contracts By Laurent LAMY; Manasa PATNAM; Michael VISSER
  6. An Auction-Based Perspective on Takeovers of Real Estate Investment Trusts By Pascal Frömel

  1. By: Frédéric Koessler (Ecole d'Économie de Paris - Paris School of Economics (PSE)); Eduardo Perez (Département d'économie)
    Abstract: In an environment with privately informed agents who can produce evidence, we study implementation of a social choice function by reading mechanisms: mechanisms that simply apply the social choice function to a consistent interpretation of the evidence. We provide sufficient conditions on the social choice function and the evidence structure for ex post implementability by such mechanisms. If the first-best policy of a mechanism designer satisfies this condition, then its implementation by a reading mechanism does not require commitment. We show that with rich evidence structures, (1) a function that is implementable with transfers is also implementable with evidence but no transfer, (2) under private value, the efficient allocation is implementable with budget balanced and individually rational transfers, and (3) in single-object auction and bilateral trade environments with interdependent values, the efficient allocation is implementable with budget balanced and individually rational transfers.
    Keywords: Implementation; Mechanism Design; Evidence; Hard Information; Commitment
    JEL: C72 D82
    Date: 2019–10
  2. By: Guillaume Haeringer (Zicklin School of Business - Baruch College [CUNY] - CUNY - City University of New York [New York]); Vincent Iehlé (CREAM - Centre de Recherche en Economie Appliquée à la Mondialisation - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - IRIHS - Institut de Recherche Interdisciplinaire Homme et Société - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université, UNIROUEN - Université de Rouen Normandie - NU - Normandie Université)
    Abstract: In a two-sided matching context we show how we can predict stable matchings by considering only one side's preferences and the mutually acceptable pairs of agents. Our methodology consists of identifying impossible matches, i.e., pairs of agents that can never be matched together in a stable matching of any problem consistent with the partial data. We analyze data from the French academic job market for mathematicians and show that the match of about 45% of positions (and about 60% of candidates) does not depend on the preferences of the hired candidates, unobserved and submitted at the final stage of the market.
    Keywords: Stable matchings,Hall's marriage theorem,French academic job market,Partial matching data
    Date: 2019–08
  3. By: Christopher Kah; Flip Klijn; Markus Walzl
    Abstract: This paper studies the one-to-one two-sided marriage model (Gale and Shapley, 1962). If agents' preferences exhibit mutually best, there is a unique stable matching that is trivially rank-fair (i.e., in each matched pair the agents assign one another the same rank). We study in how far this result is robust for matching markets that are "close" to mutually best. Without a restriction on preference profiles, we find that natural "distances" to mutually best neither bound the size of the core nor the rank-unfairness of stable matchings. However, for matching markets that satisfy horizontal heterogeneity, "local" distances to mutually best provide bounds for the size of the core and the rank- unfairness of stable matchings.
    Keywords: matching, mutually best, horizontal heterogeneity, stable matching, core, rank-fairness
    JEL: C78
    Date: 2019–09
  4. By: T. Erber; M. J. Frank
    Abstract: Arrow's `impossibility' theorem asserts that there are no satisfactory methods of aggregating individual preferences into collective preferences in many complex situations. This result has ramifications in economics, politics, i.e., the theory of voting, and the structure of tournaments. By identifying the objects of choice with mathematical sets, and preferences with Hausdorff measures of the distances between sets, it is possible to extend Arrow's arguments from a sociological to a mathematical setting. One consequence is that notions of reversibility can be expressed in terms of the relative configurations of patterns of sets.
    Date: 2019–09
  5. By: Laurent LAMY (CIRED, Ecole des Ponts, ParisTech.); Manasa PATNAM (IMF.); Michael VISSER (CREST; ENSAE; CRED, University of Paris 2.)
    Abstract: This paper develops a novel approach to estimate how contract and principal-agent characteristics influence an ex-post performance outcome when the matching between agents and principals derives from an auction process. We propose a control-function approach to account for the endogeneity of contracts and matching. This consists of, first, estimating the primitives of an interdependent values auction model - which is shown to be non-parametrically identified from the bidding data - second, constructing control functions based on the distribution of the unobserved private signals conditional on the auction outcome. A Monte Carlo study shows that our augmented outcome equation corrects well of the endogeneity biases, even in small samples. We apply our methodology to a labor market application: we estimate the effect of sports players’ auction-determined wages on their individual performance.
    Keywords: Econometrics of Contracts, Econometrics of Auctions; Structural Econometrics; Endogenous Matching; Polychotomous Sample Selection; Wage-Performance Elasticity.
    JEL: C01 C29 D44 M52
    Date: 2019–09–20
  6. By: Pascal Frömel
    Abstract: A large fraction of takeover deals among US equity real estate investment trusts (EREITs) are settled via auction procedures with a substantial number of bidders involved. The valuation of targets in mergers has been examined by the general finance literature and has also been investigated on the basis of stock price movements and publicly observable target characteristics for samples of real estate investment trusts throughout the last decade. However, conventional estimation techniques widely neglect the competitive process which is taking place in advance of the deal. Thus, the existing evidence is mainly based on final outcomes and the obtained results suffer from endogeneity through the neglected impact of the underlying sales-mechanism. The present study estimates the valuation determinants in acquisitions of REITs using an empirical auction model. The hand-collected dataset comprises REIT takeover auctions of the 2000-2017 period. The approach allows to incorporate Information of the entire bidding process and provides a distinct perspective on the public and private bidders involved. We find valuation patterns for bidders in auctions of REITs to be much more homogenous, compared to those of bidders for targets of other industries. We do not find a significant divergence of public and private bidders, as opposed to the evidence for non-REIT corporates. Inference on the determinants of target valuation suggests a significant valuation impact of typical firm-level financial variables and of the macroeconomic environment. The findings are robust to alternative premium measures and further testing. A comparison of the auction-based approach and conventional estimation procedures is provided.
    Keywords: Corporate Valuation; Heterogenous Bidders; Mergers and acquisitions; REITs; Takeover Auctions
    JEL: R3
    Date: 2019–01–01

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