nep-des New Economics Papers
on Economic Design
Issue of 2019‒12‒16
eleven papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Decentralizing Centralized Matching Markets: Implications from Early Offers in University Admissions By Julien Grenet; Yinghua He; Dorothea Kübler
  2. How Lotteries in School Choice Help to Level the Playing Field By Christian Basteck; Bettina Klaus; Dorothea Kuebler
  3. Gradual College Admission * By Guillaume Haeringer; Vincent Iehlé
  4. Semiparametric Quantile Models for Ascending Auctions with Asymmetric Bidders By Jayeeta Bhattacharya; Nathalie Gimenes; Emmanuel Guerre
  5. Central Counterparty Auctions and Loss Allocation By Robert Oleschak
  6. Bidding on price and quality: An experiment on the complexity of scoring auctions By Riccardo Camboni; Luca Corazzini; Stefano Galavotti; Paola Valbonesi
  7. Assignment Markets: Theory and Experiments By Arthur Dolgopolov; Daniel Houser; Cesar Martinelli; Thomas Stratmann
  8. Screening by Mode of Trade By Juan Beccuti; Marc Moeller
  9. Fair Division with Bounded Sharing By Erel Segal-Halevi
  10. Segregation of Markets By Turner, Christian
  11. Optimal make-take fees for market making regulation By Omar Euch; Thibaut Mastrolia; Mathieu Rosenbaum; Nizar Touzi

  1. By: Julien Grenet (PSE - Paris School of Economics, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique); Yinghua He (Rice University [Houston], TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - CNRS - Centre National de la Recherche Scientifique - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales); Dorothea Kübler (WZB - Social Science Research Center Berlin - Social Science Research Center Berlin, Technical University Berlin)
    Abstract: The matching literature commonly assumes that every agent's preferences are time-invariant and known to herself at the outset. Consequently, market centralization is preferred. We find counterevidence from a quasi-experiment in Germany's university admissions---a clearinghouse that implements the early stages of the deferred-acceptance mechanism in real time, resembling a decentralized market with continuous offers, rejections, and acceptances. We show that early offers are accepted more often than later ones, despite not being more desirable. These results and survey evidence imply that it is costly for students to learn about universities. We propose a hybrid, welfare-improving mechanism that balances centralization and decentralization.
    Keywords: Centralized Matching Market,Gale-Shapley Deferred Acceptance,Mechanism,University Admissions,Early Offers,Information Acquisition
    Date: 2019–06
  2. By: Christian Basteck; Bettina Klaus; Dorothea Kuebler
    Abstract: School authorities in the UK and the US advocate the use of lotteries to help desegregate schools. Inspired by the current school choice mechanism in Berlin, we study lottery quotas embedded in the deferred acceptance (DA) and immediate acceptance (IA) mechanisms. Some seats are allocated based on academic achievement (e.g.,grades) and some based on a lottery. We focus on the e ect of the lottery quota on truth-telling, stability, the utility of students, and the student composition at schools, using theory and experiments. We find that in theory a lottery quota strengthens truth-telling in DA by eliminating non-truth-telling equilibria. The equilibrium outcome of DA with a lottery is stable while this is not the case for IA with a lottery. Both predictions are borne out in the experiment. Moreover,the lottery quota leads to more diverse school populations in the experiment, as predicted. Comparing the two mechanisms, students with the lowest grades profit more from the introduction of the lottery under IA than under DA.
    Keywords: School choice, immediate acceptance mechanism, deferred acceptance mechanism, lotteries, experiment, market design
    JEL: C78 C91 D82 I24
    Date: 2019–11
  3. 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: We study multi-period college admission problems where, at each period, a matching is computed and students have option to either finalize their matches or participate to the next period. Students participating to an additional run of the matching mechanism can submit a new preference list to the matching clearinghouse. Such gradual matching systems can adequately account for an additional source of heterogeneity among participants, like scheduling constraints or withdrawals. We identify the conditions under which such systems first produce incentives to participate to additional runs of the matching mechanism and second yield to stable matchings (with a stability concept adapted to this environment). We use our results to evaluate the former French college admission system, where students could finalize their matches at different dates up to two months ahead the final date.
    Keywords: two-sided matching,gradual matching,stability,early admission,multi-period matching,school choice problem,withdrawal,French college admissions system
    Date: 2019–10–24
  4. By: Jayeeta Bhattacharya; Nathalie Gimenes; Emmanuel Guerre
    Abstract: The paper proposes a parsimonious and flexible semiparametric quantile regression specification for asymmetric bidders within the independent private value framework. Asymmetry is parameterized using powers of a parent private value distribution, which is generated by a quantile regression specification. As noted in Cantillon (2008), this covers and extends models used for efficient collusion, joint bidding and mergers among homogeneous bidders. The specification can be estimated for ascending auctions using the winning bids and the winner's identity. The estimation is two stage. The asymmetry parameters are estimated from the winner's identity using a simple maximum likelihood procedure. The parent quantile regression specification can be estimated using simple modifications of Gimenes (2017). A timber application reveals that weaker bidders have 30\% less chances to win the auction than stronger ones. It is also found that increasing participation in an asymmetric ascending auction may not be as beneficial as using an optimal reserve price as would have been expected from a result of Bulow and Klemperer (1996) valid under symmetry.
    Date: 2019–11
  5. By: Robert Oleschak
    Abstract: In this paper, I analyse first-price single-item auctions in case of a default of a clearing agent in a central counterparty (CCP). The bidding surviving clearing agents attach a private value to the item to be sold and share eventual losses with the CCP. The CCP as auctioneer can choose the time of auction and the loss allocation mechanism in order to minimize her own losses. I show that incentives (e.g. juniorising default fund contributions) are irrelevant for the outcome of the auction but that the composition of bidders matters. Auctions with a subset of bidders have distributional effects, i.e. the invited bidders are better off than those who are not invited to the auction. Conversely, inviting additional bidders (i.e., clients) could lead to an inefficient auction, yet their participation leaves the CCP as well as all the losing bidders better off. Recovery measures increase the safety and soundness of CCPs but can adversely affect incentives of a CCP in an auction. I show that in cases of extreme losses a CCP would rather prefer to wait than to swiftly conduct an auction, thereby inflicting costs on the financial system. Finally, I show that tear-ups are not only more costly than other recovery measures but that they fail to coordinate the actions of bidders, leading to an inferior equilibrium for all.
    Keywords: Central Counterparty, Default Management, Auctions, Recovery
    JEL: C72 D44 D53 D82 G23 G28
    Date: 2019
  6. By: Riccardo Camboni (DSEA, University of Padova); Luca Corazzini (Department of Economics, University of Venice "Ca' Foscari"); Stefano Galavotti (DEMDI, University of Bari); Paola Valbonesi (DSEA, University of Padova and HSE-NRU, Moscow)
    Abstract: We run an experiment on procurement auctions in a setting where both quality and price matter. We compare two unidimensional treatments in which the buyer fixes one dimension (quality or price) and sellers compete on the other, with three bidimensional treatments (with different strategy spaces) in which sellers submit a price-quality bid and the winner is determined by a score that linearly combines the two offers. We find that, with respect to the theoretical predictions, the bidimensional treatments significantly underperform, both in terms of efficiency and buyer's utility. We attribute this result to the higher strategic complexity of these treatments and test this intuition by fitting a structural Quantal Response Equilibrium model with risk aversion to our experimental data. We find very similar estimates for the risk aversion parameter across all treatments; instead, the error parameter, which captures deviations between the observed bids and the payoff-maximizing ones, is larger in the bidimensional treatments than in the unidimensional ones. Our evidence suggests that increasing the dimensionality and the size of the suppliers' strategy space increases their tendency to make suboptimal offers, thus undermining the theoretical superiority of more complex mechanisms.
    Keywords: scoring auctions, multidimensional auctions, complexity, bidding behaviour, Quantal Response Equilibrium
    JEL: D44 H11 H57
    Date: 2019–12
  7. By: Arthur Dolgopolov (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Cesar Martinelli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Thomas Stratmann (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: We study theoretically and experimentally assignment markets, i.e. two-sided markets where indivisible heterogeneous items with unit demand and unit supply are traded for money, as exemplified by housing markets. We define an associated strategic market game, and show that every Nash equilibrium outcome of this game is a competitive equilibrium allocation with respect to an economy consisting exclusively of the goods that were traded. That is, inefficiency may arise from miscoordination because some goods are not traded. Experimental results show players behaving close to Nash equilibrium predictions for auction-like market designs and close to generalized bargaining for the market design that incorporates decentralized communication. Communication improves efficiency, but introduces with some probability outcomes inconsistent with Nash equilibria.
    Date: 2019–12
  8. By: Juan Beccuti; Marc Moeller
    Abstract: This paper proposes a mechanism design approach, capable of endogenizing a monopolist’s choice between selling and renting in a non-anonymous durable goods setting with short-term commitment. Allowing for mechanisms that determine the good’s allocation not only at the beginning but also at the end of a given period, we show that the profit-maximizing mechanism features screening by mode of trade. By selling to high types while renting to low types, the monopolist overcomes the obstacles encountered by intertemporal price discrimination and induces immediate separation of types for arbitrary low priors.
    Keywords: Durable goods; Dynamic mechanism design; Coase problem; Ratchet effect; Screening
    JEL: D82 D86 D42
    Date: 2019–11
  9. By: Erel Segal-Halevi
    Abstract: A set of objects is to be divided fairly among agents with different tastes, modeled by additive value functions. If the objects cannot be shared, so that each of them must be entirely allocated to a single agent, then fair division may not exist. How many objects must be shared between two or more agents in order to attain a fair division? The paper studies various notions of fairness, such as proportionality, envy-freeness and equitability. It also studies consensus division, in which each agent assigns the same value to all bundles --- a notion that is useful in truthful fair division mechanisms. It proves upper bounds on the number of required sharings. However, it shows that finding the minimum number of sharings is, in general, NP-hard even for generic instances. Many problems remain open.
    Date: 2019–12
  10. By: Turner, Christian (University of Georgia)
    Abstract: Campaign-finance reformers fear that rich donors’ money can be used disproportionately to influence the content of campaign advertising and thus, perhaps, the results of elections. In European football, UEFA has attempted to ban “financial doping,” rich owners’ use of money earned in sectors other than football to pay large sums for the best football players. Campaign-finance reform efforts and “financial fair play” rules in sport may seem like bespoke solutions to different problems. In fact, they are the same solution to the same problem. Both are attempts to ensure that power accumulated in one market is not brought into another market so as to distort and damage its proper functioning. Market segregation, which seeks to bar explicit or implicit trans-market “currency” exchanges, disconnects the markets’ decisionmaking rationales. By understanding the segregation regulatory tool and its characteristic difficulties, including the appearance of black-market currency exchanges and the entrenchment of incumbents, it is possible to see in more general terms the challenges in many other legal settings, including moral rights and so-called “repugnant transactions.”
    Date: 2019–02–26
  11. By: Omar Euch (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Thibaut Mastrolia (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Mathieu Rosenbaum (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique); Nizar Touzi (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We address the mechanism design problem of an exchange setting suitable make-take fees to attract liquidity on its platform. Using a principal-agent approach, we provide the optimal compensation scheme of a market maker in quasi-explicit form. This contract depends essentially on the market maker inventory trajectory and on the volatility of the asset. We also provide the optimal quotes that should be displayed by the market maker. The simplicity of our formulas allows us to analyze in details the effects of optimal contracting with an exchange, compared to a situation without contract. We show in particular that it improves liquidity and reduces trading costs for investors. We extend our study to an oligopoly of symmetric exchanges and we study the impact of such common agency policy on the system.
    Keywords: financial regulation,market making,Make-take fees,stochastic control,principal-agent problem,high-frequency trading
    Date: 2019–11–25

This nep-des issue is ©2019 by Guillaume Haeringer and Alex Teytelboym. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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