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on Economic Design |
| By: | Liu, Ce (Michigan State University, Department of Economics) |
| Abstract: | I develop a framework for studying repeated matching markets, where in every period, a new generation of short-lived agents on one side of the market is matched to a fixed set of long-lived institutions on the other. Within this framework, I characterize self-enforcing arrangements for two types of environments. When wages are rigid, as in the matching market for hospitals and medical residents, players can be partitioned into two sets: regardless of patience level, some players can be assigned only according to a static stable matching; when institutions are patient, the other players can be assigned in ways that are unstable in one-shot interactions. I discuss these results’ implications for allocating residents to rural hospitals. When wages can be flexibly adjusted, I show that with flexible wages, repeated interaction resolves well-known non-existence issues: while static stable matchings may fail to exist with complementarities and/or peer effects, self-enforcing matching processes always exist if institutions are sufficiently patient. |
| Keywords: | two-sided matching; stability; repeated games; market design |
| JEL: | C71 C72 C73 D47 |
| Date: | 2018–12–06 |
| URL: | http://d.repec.org/n?u=RePEc:ris:msuecw:2018_013&r=all |
| By: | Martin Mihelich; Yan Shu |
| Abstract: | We provide an exact analytical solution of the Nash equilibrium for the $k$th price auction by using inverse of distribution functions. As applications, we identify the unique symmetric equilibrium where the valuations have polynomial distribution, fat tail distribution and exponential distributions. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1911.04865&r=all |
| By: | Syngjoo Choi; Jos¢¥e-Alberto Guerra; Jinwoo Kim |
| Abstract: | We develop a model of interdependent value auctions in which two types of bidders compete: insiders, who are perfectly informed about their value, and outsiders, who are informed only about the private component of their value. Because of the mismatch of bidding strategies between insiders and outsiders, the second-price auc- tion is inefficient. The English auction has an equilibrium in which the information outsiders infer from the history of drop-out prices enables them to bid toward attaining ecffiency. The presence of insiders has positive impacts on the seller¡¯s revenue. A laboratory experiment confirms key theoretical predictions, despite evidence of naive bidding. |
| Keywords: | Interdependent value auctions; asymmetric information structure; second- price auction; English auction, experiment |
| JEL: | C92 D44 D82 |
| Date: | 2018–09 |
| URL: | http://d.repec.org/n?u=RePEc:snu:ioerwp:no114&r=all |
| By: | Rica Gonen; Erel Segal-Halevi |
| Abstract: | In two-sided markets, Myerson and Satterthwaite's impossibility theorem states that one can not maximize the gain-from-trade while also satisfying truthfulness, individual-rationality and no deficit. Attempts have been made to circumvent Myerson and Satterthwaite's result by attaining approximately-maximum gain-from-trade: the double-sided auctions of McAfee (1992) is truthful and has no deficit, and the one by Segal-Halevi et al. (2016) additionally has no surplus --- it is strongly-budget-balanced. They consider two categories of agents --- buyers and sellers, where each trade set is composed of a single buyer and a single seller. The practical complexity of applications such as supply chain require one to look beyond two-sided markets. Common requirements are for: buyers trading with multiple sellers of different or identical items, buyers trading with sellers through transporters and mediators, and sellers trading with multiple buyers. We attempt to address these settings. We generalize Segal-Halevi et al. (2016)'s strongly-budget-balanced double-sided auction setting to a multilateral market where each trade set is composed of any number of agent categories. Our generalization refines the notion of competition in multi-sided auctions by introducing the concepts of external competition and trade reduction. We also show an obviously-truthful implementation of our auction using multiple ascending prices. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1911.08094&r=all |
| By: | Gaetano Antinolfi; Francesca Carapella; Francesco Carli |
| Abstract: | This paper adopts a mechanism design approach to study optimal clearing arrangements for bilateral financial contracts in which an assessment of counterparty risk is crucial for efficiency. The economy is populated by two types of agents: a borrower and lender. The borrower is subject to limited commitment and holds private information about the severity of such lack of commitment. The lender can acquire information at a cost about the commitment of the borrower, which affects the assessment of counterparty risk. When truthful revelation by the borrower is not incentive compatible, the mechanism designer optimally trades off the value of information about the lack of commitment of the borrower with the cost of incentivizing the lender to acquire such information. Central clearing of these financial contracts through a central counterparty (CCP) allows lenders to mutualize their counterparty risks, but this insurance may weaken incentives to acquire and reveal informatio n about such risks. If information acquisition is incentive compatible, then lenders choose central clearing. If it is not, they may prefer bilateral clearing to prevent strategic default by borrowers and to economize on costly collateral. Central clearing is analyzed under different institutional features observed in financial markets, which place different restrictions on the contract space in the mechanism design problem. The interaction between the costly information acquisition and the limited commitment friction differs significantly in each clearing arrangement and in each set of restrictions. This results in novel lessons about the desirability of central versus bilateral clearing depending on traders' characteristics and the institutional features defining the operation of the CCP. |
| Keywords: | Limited commitment ; Central counterparties ; Collateral |
| JEL: | G10 G14 G20 G23 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2019-58&r=all |
| By: | Susobhan Ghosh; Sujit Gujar; Praveen Paruchuri; Easwar Subramanian; Sanjay P. Bhat |
| Abstract: | Periodic Double Auctions (PDAs) are commonly used in the real world for trading, e.g. in stock markets to determine stock opening prices, and energy markets to trade energy in order to balance net demand in smart grids, involving trillions of dollars in the process. A bidder, participating in such PDAs, has to plan for bids in the current auction as well as for the future auctions, which highlights the necessity of good bidding strategies. In this paper, we perform an equilibrium analysis of single unit single-shot double auctions with a certain clearing price and payment rule, which we refer to as ACPR, and find it intractable to analyze as number of participating agents increase. We further derive the best response for a bidder with complete information in a single-shot double auction with ACPR. Leveraging the theory developed for single-shot double auction and taking the PowerTAC wholesale market PDA as our testbed, we proceed by modeling the PDA of PowerTAC as an MDP. We propose a novel bidding strategy, namely MDPLCPBS. We empirically show that MDPLCPBS follows the equilibrium strategy for double auctions that we previously analyze. In addition, we benchmark our strategy against the baseline and the state-of-the-art bidding strategies for the PowerTAC wholesale market PDAs, and show that MDPLCPBS outperforms most of them consistently. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1911.08260&r=all |
| By: | Brian C. Albrecht |
| Abstract: | I study games in which agents must sink their investments before they can match into partnerships that generate value. I focus on competitive matching markets where there is a public price to join any match. Despite the First Welfare Theorem for competitive markets, inefficiencies can still arise that can be interpreted as coordination failures. Armen does not invest because Bengt does not invest, and vice versa. Multiple equilibria can exist, with both efficient investment and not. The standard, Nash solution concept in these games does not help in determining if they are equally robust or stable. I argue we should replace the Nash solution concept in this context with a mild, common refinement: trembling-hand perfection. The main theorem of the paper proves that in a general class of models with general heterogeneity of types, cost of investment, and matching surplus, every perfect equilibrium is efficient and coordination failures do not exist in equilibrium. That means that in the context of competitive markets, coordination failures are not robust; the possibility of small mistakes rules out coordination failures. Even when markets are incomplete, every robust equilibrium in competitive markets is efficient. |
| JEL: | D52 C78 D41 |
| Date: | 2019–10–07 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2019:pal847&r=all |
| By: | David Kempe |
| Abstract: | In distortion-based analysis of social choice rules over metric spaces, one assumes that all voters and candidates are jointly embedded in a common metric space. Voters rank candidates by non-decreasing distance. The mechanism, receiving only this ordinal (comparison) information, should select a candidate approximately minimizing the sum of distances from all voters. It is known that while the Copeland rule and related rules guarantee distortion at most 5, many other standard voting rules, such as Plurality, Veto, or $k$-approval, have distortion growing unboundedly in the number $n$ of candidates. Plurality, Veto, or $k$-approval with small $k$ require less communication from the voters than all deterministic social choice rules known to achieve constant distortion. This motivates our study of the tradeoff between the distortion and the amount of communication in deterministic social choice rules. We show that any one-round deterministic voting mechanism in which each voter communicates only the candidates she ranks in a given set of $k$ positions must have distortion at least $\frac{2n-k}{k}$; we give a mechanism achieving an upper bound of $O(n/k)$, which matches the lower bound up to a constant. For more general communication-bounded voting mechanisms, in which each voter communicates $b$ bits of information about her ranking, we show a slightly weaker lower bound of $\Omega(n/b)$ on the distortion. For randomized mechanisms, it is known that Random Dictatorship achieves expected distortion strictly smaller than 3, almost matching a lower bound of $3-\frac{2}{n}$ for any randomized mechanism that only receives each voter's top choice. We close this gap, by giving a simple randomized social choice rule which only uses each voter's first choice, and achieves expected distortion $3-\frac{2}{n}$. |
| Date: | 2019–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1911.08129&r=all |
| By: | Choo, Lawrence; Zhou, Xiaoyu |
| Abstract: | We use an experiment to study whether market competition can reduce anomalous behaviour in games. In different treatments, we employ two alternative mechanisms, the random mechanism and the auction mechanism, to allocate the participation rights to the red hat puzzle game, a well-known logical reasoning problem. Compared to the random mechanism, the auction mechanism significantly reduces deviations from the equilibrium play in the red hat puzzle game. Our findings show that under careful conditions, market competition can indeed reduce anomalous behaviour in games. |
| Keywords: | market competition,market selection hypothesis,auctions,bounded-rationality,red hat puzzle |
| JEL: | C70 C90 D44 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:iwqwdp:082019&r=all |