nep-des New Economics Papers
on Economic Design
Issue of 2020‒02‒17
six papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Collusion via Information Sharing and Optimal Auctions By Olga Gorelkina
  2. Optimal Selling Mechanisms with Endogenous Proposal Rights By Sarah Auster; Nenad Kos; Salvatore Piccolo
  3. Experiment-as-Market: Incorporating Welfare into Randomized Controlled Trials By Yusuke Narita
  4. School Choice Priorities and School Segregation: Evidence from Madrid By Lucas Gortázar; David Mayor; José Montalbán
  5. Affirmative Action through Endogenous Set-Asides By Jose Alcalde; Matthias Dahm
  6. Progressive Participation By Dirk Bergemann; Philipp Strack

  1. By: Olga Gorelkina
    Abstract: This paper studies collusion via information sharing in the context of auctions. The model of collusion via information sharing builds on Aumann’s (1976) description of knowledge. Robustness of auction mechanisms to collusion via information sharing is defined as the impossibility of an agreement to collude. A cartel can agree to collude on a contract if it is common knowledge within that cartel that the contract is incentive compatible and individually rational. Robust mechanisms are characterized in a number of settings where some, all, or no bidders are bound by limited liability. Finally, the characterization is used in a simple IPV setting to design a mechanism that is both optimal and robust to collusion.
    Keywords: Bidder collusion, mechanism design, communication design, no-trade theorem
    JEL: D82 D44 C72
    Date: 2018–08
  2. By: Sarah Auster; Nenad Kos; Salvatore Piccolo
    Abstract: We study a model of optimal pricing where the right to propose a mechanism is determined endogenously: a privately informed buyer covertly invests to increase the probability of offering a mechanism. We show that higher types get to propose a mechanism more often, enabling the seller to learn from the trading process. In any equilibrium, the seller either offers the price he would have offered if he was always the one to make an offer or randomises over prices. Pure strategy equilibria may fail to exist, even when types are continuously distributed. A full characterization of equilibria is provided in the model with two types, where the seller's profit is shown to be non-monotonic in the share of high-value buyers.
    Keywords: Optimal Pricing, Bargaining Power
    JEL: D82
    Date: 2020–02
  3. By: Yusuke Narita (Cowles Foundation, Yale University)
    Abstract: Randomized Controlled Trials (RCTs) enroll hundreds of millions of subjects and involve many human lives. To improve subjects’ welfare, I propose a design of RCTs that I call Experiment-as-Market (EXAM). EXAM produces a Pareto efficient allocation of treatment assignment probabilities, is asymptotically incentive compatible for preference elicitation, and unbiasedly estimates any causal effect estimable with standard RCTs. I quantify these properties by applying EXAM to a water cleaning experiment in Kenya (Kremer et al., 2011). In this empirical setting, compared to standard RCTs, EXAM substantially improves subjects’ predicted well-being while reaching similar treatment effect estimates with similar precision.
    Keywords: Research Ethics, Clinical Trial, Social Experiment, A/B Test, Market Design, Causal Inference, Development Economics, Spring Protection, Discrete Choice
    Date: 2018–04
  4. By: Lucas Gortázar; David Mayor; José Montalbán
    Abstract: We test how changes in the design of public school choice mechanisms affect the level of segregation by nationality and parents' educational level across schools in the Madrid region using data from two reforms undertaken in the 2012 and 2013 school years.
    Date: 2020–02
  5. By: Jose Alcalde (University of Alicante); Matthias Dahm (University of Leicester)
    Abstract: We study the effects of affirmative action through endogenous set-asides. We propose a share auction for dual sourcing in which more intensive affirmative action strengthens the favoured provider. This has the potential to level the playing field and induce more competitive procurement overall. Our main result provides a condition under which affirmative action not only guarantees very substantial minority representation, but also reduces the buyer’s provision cost compared to a first-price auction. We also show that our main result is robust to variations of our benchmark model, including the assumptions specifying what providers know about each other, and how affirmative action programs are implemented.
    Keywords: Affirmative Action, Bidding Credits, Bidding Preferences, Set-Asides
    Date: 2020–01
  6. By: Dirk Bergemann (Cowles Foundation, Yale University); Philipp Strack (Cowles Foundation, Yale University)
    Abstract: A single seller faces a sequence of buyers with unit demand. The buyers are forward-looking and long-lived but vanish (and are replaced) at a constant rate. The arrival time and the valuation is private information of each buyer and unobservable to the seller. Any incentive compatible mechanism has to induce truth-telling about the arrival time and the evolution of the valuation. We derive the optimal stationary mechanism, characterize its qualitative structure, and derive a closed-form solution. As the arrival time is private information, the buyer can choose the time at which he reports his arrival. The truth-telling constraint regarding the arrival time can be represented as an optimal stopping problem. The stopping time determines the time at which the buyer decides to participate in the mechanism. The resulting value function of each buyer cannot be too convex and must be continuously differentiable everywhere, reflecting the option value of delaying participation. The optimal mechanism thus induces progressive participation by each buyer: he participates either immediately or at a future random time.
    Keywords: Dynamic Mechanism Design, Observable Arrival, Unobservable Arrival, Repeated Sales, Interim Incentive Constraints, Interim Participation Constraints, Stopping Problem, Option Value, Progressive Participation
    JEL: D44 D82 D83
    Date: 2019–08

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