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on Economic Design |
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Issue of 2020‒03‒30
thirteen papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Andrew MACKENZIE; Yu ZHOU |
| Abstract: | We investigate menu mechanisms: dynamic mechanisms where at each history, an agent selects from a menu of his possible assignments. In comparison to direct mechanisms, menu mechanisms offer better privacy to participants; we formalize this with a novel notion of mechanism informativeness. We consider both ex-post implementation and full implementation, for both subgame perfection and a strengthening of dominance that covers off-path histories, and provide conditions under which menu mechanisms provide these implementations of rules. Our results cover a variety of environments, including elections, marriage, college admissions, auctions, labor markets, matching with contracts, and object allocation. |
| Keywords: | menu mechanism, privacy, strategy-proofness, robust implementation |
| JEL: | D82 D47 C78 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:kue:epaper:e-19-012&r=all |
| By: | Gottardi, Piero (University of Essex); Mezzetti, Claudio (University of Queensland & University of Warwick) |
| Abstract: | We propose a mechanism design approach to study the role of a mediator in dispute resolution and bargaining. The mediator provides a buyer and a seller with “reality checks” by controlling the information each party has about her own value for a transaction, and proposes a price at which trade can occur if parties agree. We first consider the class of static information disclosure and trading mechanisms, in which the mediator simultaneously selects the information disclosed to the parties and posts the price at which they can trade. We characterize the mechanism that maximizes the ex-ante gains from trade. We show it is optimal to restrict agents’ information, as this allows to increase the volume of trade and complete some of the most valuable trades that are lost in the welfare maximizing mechanism under full information. We then study the value of the mediator engaging in “shuttle diplomacy” by considering a class of dynamic information disclosure and trading mechanisms, and show that it is possible to design a dynamic mechanism that achieves ex-post efficiency. Shuttle diplomacy facilitates trade by allowing the mediator to condition information releases and prices posted on the history of feedbacks she receives from the parties during her meetings with them. |
| Keywords: | Bargaining ; Information design ; Mechanism Design ; Mediation ; Persuasion JEL codes: C72 ; D47 ; D82 ; D86 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1248&r=all |
| By: | Loertscher, Simon; Mezzetti, Claudio (University of Queensland & University of Warwick) |
| Abstract: | The price mechanism is fundamental to economics but difficult to reconcile with incentive compatibility and individual rationality. We introduce a double clock auction for a homogeneous good market with multi-dimensional private information and multi-unit traders that is deficit-free, ex post individually rational, constrained efficient, and makes sincere bidding a dominant strategy equilibrium. Under a weak dependence and an identifiability condition, our double clock auction is also asymptotically efficient. Asymptotic efficiency is achieved by estimating demand and supply using information from the bids of traders that have dropped out and following a tatonnement process that adjusts the clock prices based on the estimates. |
| Keywords: | Deficit free ; dominant strategy mechanisms ; double clock auctions ; individual rationality ; multi-dimensional types ; privacy preservation ; reserve prices ; VCG mechanism JEL codes: C72 ; D44 ; D47 ; D82 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1249&r=all |
| By: | Sanyyam Khurana (Department of Economics, Delhi School of Economics) |
| Abstract: | In this paper, we characterize all the Bayesian equilibria of a firstprice auction for asymmetric bidders with risk averse preferences. The necessary conditions for an equilibrium are pure strategy, continuity and strict monotonicity. Next, we show that first-order stochastic dominance is a necessary condition and conditional stochastic dominance is a sufficient condition to unambiguously rank the bidding strategies. We establish bidders’ preferences for the first-price and the second-price auction under different types of risk aversion. Finally, for a special family of utility functions and distribution functions, we study the impact of asymmetry on seller’s revenue in a first-price auction. |
| JEL: | D44 D82 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:304&r=all |
| By: | Onur A. Koska (University of Canterbury); Frank Stähler |
| Abstract: | We consider a standard private value ascending-bid auction and show that subsequent negotiations make a seller worse off. The reason is that the seller’s optimal strategy does not change if she can make a take-it-or-leave-it offer to the highest bidder after the auction. Consequently, her expected revenues do not increase with subsequent negotiations, but decrease if the highest bidder has some bargaining power. |
| Keywords: | English auction; negotiations; reserve prices |
| JEL: | D44 |
| Date: | 2020–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:20/04&r=all |
| By: | Sümeyra Atmaca (-) |
| Abstract: | The duration to apply for participation in auctions affects entry costs and eventually the allocation and prices of contracts. The role of the application period is studied using Russian public procurement data on gasoline in 2011-2013. By relying on formal rules on the determination of the application period, I find that longer periods enhance competition and lead to price reductions. Moreover, I show that public buyers avoid long application periods. They shorten the period if they need gasoline immediately but I further argue that it facilitates favoritism. Finally, evidence is provided of collusion sustaining favoritism |
| Keywords: | public procurement, auction design, corruption, regulation |
| JEL: | H57 K42 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:rug:rugwps:20/993&r=all |
| By: | Yeon-Koo Che; Kyungmin Kim; Konrad Mierendorff |
| Abstract: | We consider a dynamic model of Bayesian persuasion. Over time, a sender performs a series of experiments to persuade a receiver to take a desired action. Due to constraints on the information flow, the sender must take real time to persuade, and the receiver may stop listening and take a final action at any time. In addition, persuasion is costly for both players. To incentivize the receiver to listen, the sender must leave rents that compensate his listening costs, but neither player can commit to her/his future actions. Persuasion may totally collapse in Markov perfect equilibrium (MPE) of this game. However, for persuasion costs sufficiently small, a version of a folk theorem holds: outcomes that approximate Kamenica and Gentzkow (2011)'s sender-optimal persuasion as well as full revelation (which is most preferred by the receiver) and everything in between are obtained in MPE, as the cost vanishes. |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2003.07338&r=all |
| By: | Eric Bax |
| Abstract: | In a second-price auction with i.i.d. (independent identically distributed) bidder valuations, adding bidders increases expected buyer surplus if the distribution of valuations has a sufficiently heavy right tail. While this does not imply that a bidder in an auction should prefer for more bidders to join the auction, it does imply that a bidder should prefer it in exchange for the bidder being allowed to participate in more auctions. Also, for a heavy-tailed valuation distribution, marginal expected seller revenue per added bidder remains strong even when there are already many bidders. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2002.09014&r=all |
| By: | Tao Zhang; Quanyan Zhu |
| Abstract: | We study the design of decision-making mechanism for resource allocations over a multi-agent system in a dynamic environment. Agents' privately observed preference over resources evolves over time and the population is dynamic due to the adoption of stopping rules. The proposed model designs the rules of encounter for agents participating in the dynamic mechanism by specifying an allocation rule and three payment rules to elicit agents' coupled decision makings of honest preference reporting and optimal stopping over multiple periods. The mechanism provides a special posted-price payment rule that depends only on each agent's realized stopping time to directly influence the population dynamics. This letter focuses on the theoretical implementability of the rules in perfect Bayesian Nash equilibrium and characterizes necessary and sufficient conditions to guarantee agents' honest equilibrium behaviors over periods. We provide the design principles to construct the payments in terms of the allocation rules and identify the restrictions of the designer's ability to influence the population dynamics. The established conditions make the designer's problem of finding multiple rules to determine an optimal allocation rule. |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2003.03173&r=all |
| By: | Idione Meneghel (Australian National University College of Business and Economics); Rabee Tourky (Australian National University College of Business and Economics) |
| Abstract: | This paper presents new results on the existence of pure-strategy Bayesian equilibria in specified functional forms. These results broaden the scope of methods developed by Reny (2011) well beyond monotone pure strategies. Applications include natural models of first-price and all-pay auctions not covered by previous existence results. To illustrate the scope of our results, we provide an analysis of three auctions: (i) a first-price auction of objects that are heterogeneous and imperfect substitutes; (ii) a first-price auction in which bidders’ payoffs have a very general interdependence structure; and (iii) an all-pay auction with non-monotone equilibrium. |
| Keywords: | Bayesian games, Monotone strategies, Pure-strategy equilibrium, Auctions |
| JEL: | C72 D44 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2190r2&r=all |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | Consider a market with many identical ï¬ rms offering a homogeneous good. A consumer obtains price quotes from a subset of ï¬ rms and buys from the ï¬ rm offering the lowest price. The “price count†is the number of ï¬ rms from which the consumer obtains a quote. For any given ex ante distribution of the price count, we obtain a tight upper bound (under ï¬ rst-order stochastic dominance) on the equilibrium distribution of sale prices. The bound holds across all models of ï¬ rms’ common-prior higher-order beliefs about the price count, including the extreme cases of complete information ( ï¬ rms know the price count exactly) and no information ( ï¬ rms only know the ex ante distribution of the price count). A qualitative implication of our results is that even a small ex ante probability that the price count is one can lead to dramatic increases in the expected price. The bound also applies in a wide class of models where the price count distribution is endogenized, including models of simultaneous and sequential consumer search. |
| Keywords: | Search, Price Competition, Bertrand Competition, "Law of One Price", Price Count, Price Quote, Information Structure, Bayes Correlated Equilibrium |
| JEL: | D41 D42 D43 D83 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2224&r=all |
| By: | Daniel Chen; Darrell Duffie |
| Abstract: | We model a simple market setting in which fragmentation of trade of the same asset across multiple exchanges improves allocative efficiency. Fragmentation reduces the inhibiting effect of price-impact avoidance on order submission. Although fragmentation reduces market depth on each exchange, it also isolates cross-exchange price impacts, leading to more aggressive overall order submission and better rebalancing of unwanted positions across traders. Fragmentation also has implications for the extent to which prices reveal traders’ private information. While a given exchange price is less informative in more fragmented markets, all exchange prices taken together are more informative. |
| JEL: | D47 D82 G14 |
| Date: | 2020–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:26828&r=all |
| By: | Haris Aziz; Barton E. Lee |
| Abstract: | A well-known axiom for proportional representation is Proportionality of Solid Coalitions (PSC). We characterize committees satisfying PSC as possible outcomes of the Minimal Demand rule, which generalizes an approach pioneered by Michael Dummett. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2002.09598&r=all |