nep-des New Economics Papers
on Economic Design
Issue of 2019‒10‒21
six papers chosen by
Alex Teytelboym
University of Oxford

  1. Optimal mechanism for the sale of a durable good By Doval, Laura; Skreta, Vasiliki
  2. A Theory of Simplicity in Games and Mechanism Design By Pycia, Marek; Troyan, Peter
  3. Transparency and Fairness in School Choice Mechanisms By Yoan Hermstrüwer
  4. Procuring Medical Devices: Evidence from Italian Public Tenders By Vincenzo Atella; Francesco Decarolis
  5. Resolving Failed Banks: Uncertainty, Multiple Bidding & Auction Design By Jason Allen; Robert Clark; Brent R. Hickman; Eric Richert
  6. Central tendency bias in belief elicitation By Crosetto, P.; Filippin, A.; Katuscak, P.; Smith, J.

  1. By: Doval, Laura; Skreta, Vasiliki
    Abstract: We show that posted prices are the optimal mechanism to sell a durable good to a privately informed buyer when the seller has limited commitment in an infinite horizon setting. We provide a methodology for mechanism design with limited commitment and transferable utility. Whereas in the case of commitment, subject to the buyer's truthtelling and participation constraints, the seller's problem is a decision problem, in the case of limited commitment, the seller's problem corresponds to an intrapersonal game, where different "incarnations" of the seller represent the different beliefs he may have about the buyer's valuation.
    Keywords: information design; intrapersonal equilibrium; Limited Commitment; mechanism design; posted price; self-generation
    JEL: D84 D86
    Date: 2019–08
  2. By: Pycia, Marek; Troyan, Peter
    Abstract: We introduce a general class of simplicity standards that vary the foresight abilities required of agents in extensive-form games. Rather than planning for the entire future of a game, agents are presumed to be able to plan only for those histories they view as simple from their current perspective. Agents may update their so-called strategic plan as the game progresses, and, at any point, for the called-for action to be simply dominant, it must lead to unambiguously better outcomes, no matter what occurs at non-simple histories. We use our approach to simplicity to provide characterizations of simple mechanisms in general social choice environments both with and without transfers, including canonical mechanisms such as ascending auctions, posted prices, and serial dictatorship-style mechanisms. As a final application, we explain the widespread popularity of the well-known Random Priority mechanism by characterizing it as the unique mechanism that is efficient, fair, and simple to play.
    JEL: C72 C78 D44 D82
    Date: 2019–10
  3. By: Yoan Hermstrüwer (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: This article explores the impact of procedural information on the behavior of applicants under two of the most commonly used school admissions procedures: the Gale-Shapley mechanism and the Boston mechanism. In a lab experiment, I compare the impact of information about the mechanism, information about individually optimal application strategies, and information about both. I find that strategic and full information increase truth-telling and stability under the Gale-Shapley mechanism. Under the Boston mechanism, however, the adoption of equilibrium strategies remains unaffected. Contrary to prevailing assumptions in matching theory, I show that the Boston mechanism improves perceived fairness. These results underscore the importance of procedural information and suggest that eliminating justified envy may not be a sucient condition of fairness.
    Keywords: matching markets, school choice, transparency, fairness, law and market design
    JEL: C78 C92 I20 K10
    Date: 2019–08
  4. By: Vincenzo Atella (CEIS & DEF University of Rome "Tor Vergata"); Francesco Decarolis (Bocconi University, Economics Department)
    Abstract: The public procurement of medical devices is increasingly relying on auction mechanisms to move toward more transparent procedures and to promote competition between suppliers in a market where the quality of the products matters enormously and an improper auction design could be very harmful. Based on Italian hospital data, we present new evidence on the performance of the public tenders to procure orthopaedic prosthesis for hips, knees and shoulders. Focusing on three main outcomes, the number of participants, the presence of a single firm bidding and the winning rebate, for the first time we describe how features related to the tender, hospital, region and bidders' competition all contribute to explain the functioning of the procurement auctions. The evidence we obtain can meaningfully help policy makers in designing and implementing better public procurement systems.
    Keywords: procurement auctions, medical devices, orthopaedic prosthesis, tender characteristics, Italy.
    JEL: I18 J18 C21
    Date: 2019–10–10
  5. By: Jason Allen (Bank of Canada); Robert Clark (Queen's University); Brent R. Hickman (Olin Business School, University of Washington); Eric Richert
    Abstract: The FDIC resolves insolvent banks using an auction process in which bidding is multidimensional and the rule used to evaluate bids along the different dimensions is proprietary. Uncertainty about the scoring rule leads banks to simultaneously submit multiple differentiated bids. This resolution mechanism typically results in considerable losses for the FDIC—$90 billion during the crisis. Our objective is to see whether the mechanism could be improved. To do so, we propose a methodology for analyzing auction environments where bids are ranked according to multiple attributes chosen by bidders, but where there is uncertainty about the scoring rule used to evaluate the different components of the bids. Using this framework, which extends structural estimation techniques for combinatorial auctions, and FDIC data summarizing bids, we back out the underlying preferences of banks for failed institutions. With these we perform counterfactuals in which we eliminate uncertainty and/or multiple bidding. Our findings suggest that the FDIC could reduce the cost of resolution by around 17% by announcing the scoring rule before bidding begins.
    Keywords: Failed Banks, Banking Crisis, Regulation, Resolution, Combinatorial Auctions
    JEL: G2 G21 G28 E65
    Date: 2019–10
  6. By: Crosetto, P.; Filippin, A.; Katuscak, P.; Smith, J.
    Abstract: We conduct an experiment in which subjects participate in a first-price auction against an automaton that bids randomly in a given range. The subjects first place a bid in the auction. They are then given an incentivized elicitation of their beliefs of the opponent’s bid. Despite having been told that the bid of the opponent was drawn from a uniform distribution, we find that most of the subjects report beliefs that have a peak in the interior of the range. The result is robust across seven different experimental treatments. While not expected at the outset, these single-peaked beliefs have precedence in the experimental psychology judgments literature. Our results suggest that an elicitation of probability beliefs can result in responses that are more concentrated than the objectively known or induced truth. We provide indicative evidence that such individual belief reports can be rationalized by well-defined subjective beliefs that differ from the objective truth. Our findings offer an explanation for the conservatism and overprecision biases in Bayesian updating. Finally, our findings suggest that probabilistic forecasts of uncertain events might have less variance than the actual events.
    JEL: C72 C91
    Date: 2019

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