nep-des New Economics Papers
on Economic Design
Issue of 2020‒05‒04
two papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. On the integration of Shapley-Scarf housing markets By Rajnish Kunar; Kriti Manocha; Josue Ortega
  2. Procedural Preferences, Self-Interest, and Communication. Evidence from a Laboratory Experiment By Philipp Harms; Claudia Landwehr; Maximilian Lutz; Markus Tepe

  1. By: Rajnish Kunar; Kriti Manocha; Josue Ortega
    Abstract: We study the welfare consequences of merging disjoint Shapley-Scarf housing markets. We obtain tight bounds on the number of agents harmed by integration and on the size of their losses. We show that, in the worst-case scenario, market integration may harm the vast majority of agents, and that the average rank of an agent's house can decrease (asymptotically) by 50% of the length of their preference list. We also obtain average-case results. We exactly compute the expected gains from integration in random markets, where each of the preference profiles is chosen uniformly at random. We show that, on average, market integration benefits all agents, particularly those in smaller markets. Using the expected number of cycles in the top trading cycles algorithm, we bound the expected number of agents harmed by integration. In particular, the expected fraction of agents harmed by integration is less than 50% if each market has the same size and this is below 26 (independent of the number of markets that merge). We conclude by providing a preference domain that ensures that those harmed by market integration are a minority.
    Date: 2020–04
  2. By: Philipp Harms (Johannes Gutenberg-University Mainz, Germany); Claudia Landwehr (Johannes Gutenberg-University Mainz, Germany); Maximilian Lutz (University of Oldenburg); Markus Tepe (University of Oldenburg)
    Abstract: What determines individuals’ preferences over alternative decision-making procedures – the potential gain from these procedures or the intrinsic value assigned to them? This study tests an income redistribution game, in which subjects can endogenously determine whether to decide upon redistribution by majority voting or to delegate the decision to a randomly selected member of the group (a “random decider”). Subjects are assigned to groups of three and receive an initial endowment, the sum of endowments being common knowledge. After a choice of the decision procedure to be applied, they can choose to either redistribute endowments equally or to maintain the original allocation. We find that the share of rational egoistic procedural choices increases when the distribution of endowments is common knowledge, compared to a situation in which subjects only know their own endowment. However, a substantive share of subjects reveals a persistent preference for majority voting, regardless of their distributional interest. Support for majority voting is strongest when common knowledge of initial endowments is combined with a chat option. These findings not only suggest that majority voting is a normative default when the rational egoistic procedural choice is limited by a lack of information, but also that support for majority voting, even where it is costly to the individual, is promoted through communication.
    Keywords: procedural preferences, endogenous institutional choice, majority voting, delegation, laboratory experiment
    Date: 2020–04–23

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