nep-des New Economics Papers
on Economic Design
Issue of 2020‒03‒16
four papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Auction Length and Prices : Evidence from Random Auction Closing in Brazil By Oliveira,Alexandre Borges De; Fabregas Masllovet,Abdoulaye; Fazekas,Mihaly
  2. Dummy players and the quota in weighted voting games: Some further results By Fabrice Barthelemy; Mathieu Martin
  3. Affirmative Action and Human Capital Investment: Evidence from a Randomized Field Experiment By Christopher Cotton; Brent R. Hickman; Joseph P. Price
  4. A Note on Adverse Selection and Bounded Rationality By Takeshi Murooka; Takuro Yamashita

  1. By: Oliveira,Alexandre Borges De; Fabregas Masllovet,Abdoulaye; Fazekas,Mihaly
    Abstract: Electronic reverse auctions are the most used competitive method for procurement of goods and non-consulting services by the Federal Government of Brazil. These auctions are closed randomly, which perfectly satisfies fairness considerations but may be suboptimal from an efficiency perspective. There are concerns that tenders are closed too early and randomness favors bidders with algorithmic bidding software, leading to high prices. Hence, this paper investigates what would happen if the random closing rule was replaced by another rule. The paper uses the complete data set of completed electronic actions in 2015?17 comprising 112 million bids for 0.9 million items purchased. Exploiting the random closing rule, simple OLS models are run with a wide set of fixed effects as well as covariates capturing competition. The findings point at alternative strategies to optimize auction design: simple actions such as increasing the average and minimum length of the random phase can result in 2.8 and 0.6 percent price savings, respectively, or R$540 million and R$116 million per year; or more complex designs such as setting the length to the maximum for the random phase if there are 15 bidders or more can yield 2.6 percent or R$ 500 million a year in price savings, or doing the same if a large discount is placed within three minutes to closing can yield 1.1 percent lower prices or R$ 210 million a year in savings.
    Keywords: Regulatory Regimes,Judicial System Reform,Legal Reform,Legislation,Public Sector Economics,Social Policy,Public Finance Decentralization and Poverty Reduction,Legal Products,International Trade and Trade Rules,Telecommunications Infrastructure,Health Care Services Industry,ICT Applications
    Date: 2019–04–22
  2. By: Fabrice Barthelemy; Mathieu Martin (Université de Cergy-Pontoise, THEMA)
    Abstract: This paper is a companion paper of Barthelemy et al. (2019) which studies the role of the quota on the occurrence of "dummy" players in small weighted voting games (i.e., in voting games with 3, 4 or 5 players). We here extend the results obtained in this paper by considering voting games with a larger number of players (up to 15). It is shown that the probability of having a player without voting power is very sensitive to the choice of the quota and the quota values that minimize this probability are derived.
    Keywords: Cooperative game theory, weighted voting games, dummy player, probability of voting paradoxes.
    JEL: C7 D7
    Date: 2020
  3. By: Christopher Cotton (Queen's University); Brent R. Hickman (Olin Business School, University of Washington); Joseph P. Price (Brigham Young University)
    Abstract: We conduct a field experiment paying students based on relative performance on a mathematics exam and tracking study efforts on a mathematics website to test the incentive effects of Affirmative Action (AA) policies on study effort and math proficiency. AA increases study effort and exam performance for the majority of disadvantaged students targeted by the policy. While the performance of the highest-ability students targeted by the AA policy declines, on average study activity and exam performance rise under AA. Overall, the experimental evidence suggests that AA can promote greater equality of market outcomes while narrowing achievement gaps.
    Keywords: affirmative action, large contest, field experiment, all-pay auction, college admissions, human capital, study effort
    JEL: J15 J24 C93 D82 D44
    Date: 2020–03
  4. By: Takeshi Murooka (Osaka School of International Public Policy, Osaka University); Takuro Yamashita (Toulouse School of Economics, University of Toulouse)
    Abstract: There is accumulating evidence that some consumers are behavioral in the sense that they may make suboptimal decisions. This paper investigates adverse selection with general types of such behavioral biases. In our model, some buyers (i.e., consumers) may take actions that do not necessary optimize own payoffs, which encompass virtually any type of biases including subjective probability,framing, model misspecification, random errors, and inferential naivety. We focus on a situation in which there exists severe adverse selection where only no-trade outcome is possible under rational agents. We show that the no-trade theorem remains to hold without imposing any additional assumption on buyers' behavior. That is, if there is any trade under a mechanism which is incentive compatible for sellers, then the expected payoff from the trade is negative (i.e., ex ante individual rationality constraint is violated) for some type of buyers. Our result sheds light on a new trade-off between social surplus and payoff losses of boundedly-rational buyers.
    Keywords: adverse selection, bounded rationality, mechanism design, no-trade theorem
    JEL: D82 D83 D86 D90 D91
    Date: 2020–03

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