nep-des New Economics Papers
on Economic Design
Issue of 2020‒03‒23
five papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. A “Reference Price Auction” to Buy or Sell Different Assets Simultaneously By Olivier Armantier
  2. Mechanism Design with Blockchain Enforcement By Hitoshi Matsushima; Shunya Noda
  3. Market Design, Human Behavior and Management By Yan Chen; Peter Cramton; John List; Axel Ockenfels
  4. Stability against Robust Deviations in the Roommate Problem By Hirata, Daisuke; Kasuya, Yusuke; Tomoeda, Kentaro
  5. Compromise, Don't Optimize: A Prior-Free Alternative to Perfect Bayesian Equilibrium By Karl Schlag; Andriy Zapechelnyuk

  1. By: Olivier Armantier (Board of Governors of the Federal Reserve System (U.S.); Federal Reserve Bank of Philadelphia; Federal Reserve Bank of New York)
    Abstract: In finance, auctions are often conducted to buy or sell simultaneously various assets with very different characteristics. These auctions raise a number of challenges that cannot always be addressed with standard auction designs. In this post, I discuss an alternative design?the ?reference price auction??and present evidence that it may dominate other methods often implemented in practice.
    Keywords: Auction design; procurement auctions; laboratory experiments
    JEL: G1
  2. By: Hitoshi Matsushima (Department of Economics, University of Tokyo); Shunya Noda (Vancouver School of Economics, University of British Columbia)
    Abstract: We study the design of self-enforcing mechanisms that rely on neither a trusted third party (e.g., court, trusted mechanism designer) nor a long-term relationship. Instead, we use a smart contract written on blockchains as a commitment device. We design the digital court, a smart contract that identifies and punishes agents who reneged on the agreement. The digital court substitutes the role of legal enforcement in the traditional mechanism design paradigm. We show that, any agreement that is implementable with legal enforcement can also be implemented with enforcement by the digital court. To pursue a desirable design of the digital court, we study a way to leverage truthful reports made by a small fraction of behavioral agents. Our digital court has a unique equilibrium as long as there is a positive fraction of behavioral agents, and it gives correct judgment in the equilibrium if honest agents are more likely to exist than dishonest agents. The platform for smart contracts is already ready in 2020; thus, self-enforcing mechanisms proposed in this paper can be used practically, even now. As our digital court can be used for implementing general agreements, it does not leak the detailed information about the agreement even if it is deployed on a public blockchain (e.g., Ethereum) as a smart contract.
    Date: 2020–03
  3. By: Yan Chen; Peter Cramton; John List; Axel Ockenfels
    Abstract: We review past research and discuss future directions on how the vibrant research areas of market design and behavioral economics have influenced and will continue to impact the science and practice of management in both the private and public sectors. Using examples from various auction markets, reputation and feedback systems in online markets, matching markets in education, and labor markets, we demonstrate that combining market design theory, behavioral insights, and experimental methods can lead to fruitful implementation of superior market designs in practice.
    Date: 2020
  4. By: Hirata, Daisuke; Kasuya, Yusuke; Tomoeda, Kentaro
    Abstract: We propose a new solution concept in the roommate problem, based on the "robustness" of deviations (i.e., blocking coalitions). We call a deviation from a matching robust up to depth k, if none of the deviators gets worse off than at the original matching after any sequence of at most k subsequent deviations. We say that a matching is stable against robust deviations (for short, SaRD) up to depth k, if there is no robust deviation up to depth k. As a smaller k imposes a stronger requirement for a matching to be SaRD, we investigate the existence of a matching that is SaRD with a minimal depth k. We constructively demonstrate that a SaRD matching always exists for k = 3 and establish sufficient conditions for k = 1 and 2.
    Date: 2020–03
  5. By: Karl Schlag; Andriy Zapechelnyuk
    Abstract: Perfect Bayesian equilibrium is the classic solution concept for games with incomplete information, where players optimize under given beliefs over states. We introduce a new concept called perfect compromise equilibrium, where players find compromise decisions that are good in all states. This solution concept is tractable even if states are high dimensional as it does not rely on priors, and it always exists. We demonstrate the power of our solution concept in prominent economic examples, including Cournot and Bertrand markets, Spence's signaling, and bilateral trade with common value.
    Date: 2020–03

This nep-des issue is ©2020 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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