nep-des New Economics Papers
on Economic Design
Issue of 2020‒01‒06
ten papers chosen by
Alex Teytelboym
University of Oxford

  1. Affirmative Action with Overlapping Reserves By Tayfun Sönmez; M. Bumin Yenmez
  2. Matching Platforms By Masaki Aoyagi; Seung Han Yoo
  3. Quick or Cheap? Breaking Points in Dynamic Markets By Panayotis Mertikopoulos; Heinrich H. Nax; Bary S. R. Pradelski
  4. Collusion through market sharing agreements: Evidence from Quebec's road paving market By de Leverano, Adriano
  5. Prices versus Auctions in Large Markets By Zhang, Hanzhe
  6. Addictive Auctions: using lucky-draw and gambling addiction to increase participation during auctioning By Kumar, Ravin
  7. Bayesian Rapid Optimal Adaptive Design (BROAD): Method and application distinguishing models of risky choice By Ray, Debajyoti; Golovin, Daniel; Krause, Andreas; Camerer, Colin
  8. The Winner-Take-All Dilemma By Kazuya Kikuchi; Yukio Koriyama
  9. Obvious manipulations in cake-cutting By Ortega, Josué; Segal-Halevi, Erel
  10. One Dollar Each Eliminates Envy By Johannes Brustle; Jack Dippel; Vishnu V. Narayan; Mashbat Suzuki; Adrian Vetta

  1. By: Tayfun Sönmez (Boston College); M. Bumin Yenmez (Boston College)
    Abstract: In a wide variety of real-life resource allocation problems such as school choice or assignment of public positions, implementation of affirmative action policies rely on choice rules that balance meritocracy with equity. We study choice rules where meritocracy is attained through reliance on a priority list, and equity is attained through reserved positions for target groups of disadvantaged individuals. Focusing on overlapping reserves, the case where an individual can belong to multiple types of reserved positions, we characterize choice rules that satisfy maximal compliance with reservations, elimination of justified envy, and non-wastefulness. When an individual accommodates only one of the reserved positions, the horizontal envelope choice rule is the only rule to satisfy these three axioms. When an individual accommodates each of the reserved positions she qualifies for, there are complementarities between individuals. Under this alternative convention, and assuming there are only two target groups, such as women and minorities, we show that paired-admission choice rules are the only ones to satisfy the three axioms. Building on these results, we provide improved allocation mechanisms for school choice in Chile, public position allocation in India, and college admissions in Brazil.
    Keywords: Market design, matching, affirmative action, deferred acceptance
    JEL: C78 D47
    Date: 2019–12–15
  2. By: Masaki Aoyagi (Osaka University); Seung Han Yoo (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: A platform matches agents from two sides of a market to create a trading opportunity between them. The agents subscribe to the platform by paying subscription fees which are contingent on their reported private types, and then engage in strategic interactions with their matched partner(s). A matching mechanism of the platform specifies the subscription fees as well as the matching rule which determines the probability that each type of agent on one side is matched with each type on the other side. We characterize optimal matching mechanisms which induce truthful reporting from the agents and maximize the subscription revenue. We show that the optimal mechanisms for a one-to-one trading platform match do not necessarily entail assortative matching, and may employ an alternative matching rule that maximizes the extraction of informational rents of the higher type. We then study an auction platform that matches each seller to two agents, and show that the optimal mechanism entails the combination of negative and positive assortative matching.
    Keywords: assortative, random, auction, subscription, revenue maximization, complementarity
    JEL: D42 D47 D62 D82 L12
    Date: 2019
  3. By: Panayotis Mertikopoulos (Université Grenoble Alpes); Heinrich H. Nax (Department of Humanities, Social and Political Sciences, Eidgenössische Technische Hochschule Zürich); Bary S. R. Pradelski (Université Grenoble Alpes)
    Abstract: We examine two-sided markets where players arrive stochastically over time and are drawn from a continuum of types. The cost of matching a client and provider varies, so a social planner is faced with two contending objectives: a) to reduce players’ waiting time before getting matched; and b) to form efficient pairs in order to reduce matching costs. We show that such markets are characterized by a quick or cheap dilemma: Under a large class of distributional assumptions, there is no `free lunch’, i.e., there exists no clearing schedule that is simultaneously optimal along both objectives. We further identify a unique breaking point signifying a stark reduction in matching cost contrasted by an increase in waiting time. Generalizing this model, we identify two regimes: one, where no free lunch exists; the other, where a window of opportunity opens to achieve a free lunch. Remarkably, greedy scheduling is never optimal in this setting.
    Keywords: Dynamic matching, Online markets, Market design
    JEL: D47 C78 C60 D80
    Date: 2019–12
  4. By: de Leverano, Adriano
    Abstract: I study a case of market sharing agreements to provide evidence of coordination between colluding firms on the degree to which they compete against each other (henceforth referred to as head-to-head competition) and their bidding behavior. I also quantify the impact that coordinating head-to-head competition has on procurement costs. My focus is on the two largest rms bidding in provincial road paving procurement auctions in Quebec between 2007 and 2015. I use the police investigation into collusion and corruption in the Quebec construction industry launched in October 2009 to capture the end of this cartel. I find that after this date, the two suspected firms i) were more likely to bid in the same auction and ii) submitted significantly lower bids when they competed in the same auction. A structural model of entry and bidding shows that if the firms had kept competing head-to-head at the same rate as in the collusive period but had stopped colluding on bids, bids would have increased by about 3.86% with respect to the competitive scenario observed after the police investigation began. This finding suggests that there were additional procurement costs associated with firms coordinating on the degree of head-to-head competition.
    Keywords: Auction,Bidding ring,Collusion,Public procurement
    JEL: D44 H57 L22 L74
    Date: 2019
  5. By: Zhang, Hanzhe (Michigan State University, Department of Economics)
    Abstract: This paper studies the use of posted prices versus auctions in a large dynamic market with many short-lived sellers and long-lived buyers. Although a reserve-price auction maximizes the expected revenue, the optimal revenue decreases when the market becomes more buyer-friendly; namely, when buyers survive longer, face fewer competitors, and become more patient. As the market becomes more buyer-friendly, the revenue advantage from a reserve-price auction over posting a price reduces, but using posted prices would lead to sale and allocative inefficiencies.
    Keywords: optimal sales mechanism; reserve-price auction; posted price
    JEL: D44
    Date: 2019–12–17
  6. By: Kumar, Ravin
    Abstract: Auction theories are believed to provide a better selling opportunity for the resources to be allocated. Various organizations have taken measures to increase trust among participants towards their auction system, but trust alone cannot ensure a high level of participation. We propose a new type of auction system which takes advantage of lucky-draw and gambling addictions to increase the engagement level of candidates in an auction. Our system makes use of security features present in existing auction systems for ensuring fairness and maintaining trust among participants.
    Date: 2019–06–14
  7. By: Ray, Debajyoti; Golovin, Daniel; Krause, Andreas; Camerer, Colin
    Abstract: Economic surveys and experiments usually present fixed questions to respondents. Rapid computation now allows adaptively optimized questions, based on previous responses, to maximize expected information. We describe a novel method of this type introduced in computer science, and apply it experimentally to six theories of risky choice. The EC2 method creates equivalence classes, each consisting of a true theory and its noisy-response perturbations, and chooses questions with the goal of distinguishing between equivalence classes by cutting edges connecting them. The edge-cutting information measure is adaptively submodular, which enables a provable performance bound and “lazy” evaluation which saves computation. The experimental data show that most subjects, making only 30 choices, can be reliably classified as choosing according to EV or two variants of prospect theory. We also show that it is difficult for subjects to manipulate by misreporting preferences, and find no evidence of manipulation.
    Date: 2019–11–18
  8. By: Kazuya Kikuchi; Yukio Koriyama
    Abstract: This paper considers collective decision-making when individuals are partitioned into groups (e.g., states or parties) endowed with voting weights. We study a game in which each group chooses an internal rule that specifies the allocation of its weight to the alternatives as a function of its members' preferences. We show that under quite general conditions, the game is a Prisoner's Dilemma: while the winner-take-all rule is a dominant strategy, the equilibrium is Pareto dominated. We also show asymptotic Pareto dominance of the proportional rule. Our numerical computation for the US Electoral College verifies the sensibility of the asymptotic results.
    Date: 2019–06
  9. By: Ortega, Josué; Segal-Halevi, Erel
    Abstract: In cake-cutting, strategy-proofness is a very costly requirement in terms of fairness: for n = 2 it implies a dictatorial allocation, whereas for n Ï 3 it requires that one agent receives no cake. We show that a weaker version of this property recently suggested by Troyan and Morril, called not-obvious manipulability, is compatible with the strong fairness property of proportionality, which guarantees that each agent receives 1/n of the cake. Both properties are satisfied by the leftmost leaves mechanism, an adaptation of the Dubins - Spanier moving knife procedure. Most other classical proportional mechanisms in literature are obviously manipulable, including the original moving knife mechanism. Not-obvious manipulability explains why leftmost leaves is manipulated less often in practice than other proportional mechanisms.
    Keywords: cake-cutting,not-obvious manipulability,prior-free mechanism design
    JEL: D63 D82
    Date: 2019
  10. By: Johannes Brustle; Jack Dippel; Vishnu V. Narayan; Mashbat Suzuki; Adrian Vetta
    Abstract: We study the fair division of a collection of $m$ indivisible goods amongst a set of $n$ agents. Whilst envy-free allocations typically do not exist in the indivisible goods setting, envy-freeness can be achieved if some amount of a divisible good (money) is introduced. Specifically, Halpern and Shah (SAGT 2019, pp.374-389) showed that, given additive valuation functions where the marginal value of each item is at most one dollar for each agent, there always exists an envy-free allocation requiring a subsidy of at most $(n-1)\cdot m$ dollars. The authors also conjectured that a subsidy of $n-1$ dollars is sufficient for additive valuations. We prove this conjecture. In fact, a subsidy of at most one dollar per agent is sufficient to guarantee the existence of an envy-free allocation. Further, we prove that for general monotonic valuation functions an envy-free allocation always exists with a subsidy of at most $2(n-1)$ dollars per agent. In particular, the total subsidy required for monotonic valuations is independent of the number of items.
    Date: 2019–12

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