nep-des New Economics Papers
on Economic Design
Issue of 2020‒05‒18
seven papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Designing Direct Matching Mechanisms for India with Comprehensive Affirmative Action By Orhan Ayg\"un; Bertan Turhan
  2. Slot-specific Priorities with Capacity Transfers By Michelle Avataneo; Bertan Turhan
  3. Matching with Generalized Lexicographic Choice Rules By Orhan Ayg\"un; Bertan Turhan
  4. School Choice with Preference Rank Classes By Nickesha Ayoade; Szilvia Pápai
  5. Implementation in Iterative Elimination of Obviously Dominated Strategies: An Experiment on King Solomon's Dilemma By Makoto Hagiwara; Fumihiro Yonekura
  6. Heterogeneous Effects of Missing out on a Place at a Preferred Secondary School in England By Gorman, Emma; Walker, Ian
  7. Price Manipulation, Dynamic Informed Trading, and the Uniqueness of Equilibrium in Sequential Trading By Shino Takayama

  1. By: Orhan Ayg\"un; Bertan Turhan
    Abstract: Since 1950, India has been implementing the most comprehensive affirmative action program in the world. Vertical reservations are provided to members of historically discriminated Scheduled Castes (SC), Scheduled Tribes (ST), and Other Backward Classes (OBC). Horizontal reservations are provided for other disadvantaged groups, such as women and disabled people, within each vertical category. As discussed in S\"onmez and Yenmez (2019a), the lack of a well-defined procedure to implement horizontal reservations results in extensive confusion. Indirect mechanisms currently used in practice do not allow reserve category applicants to fully express their preferences. Moreover, the sequential processes in use for OBC de-reservations lead to severe shortcomings. To overcome these and other related issues, we design choice rules for institutions that take meritocracy, vertical and horizontal reservations, and OBC de-reservations into account. The cumulative offer mechanisms with respect to these choice rules satisfactorily clear matching markets in India.
    Date: 2020–04
  2. By: Michelle Avataneo; Bertan Turhan
    Abstract: We study two-sided matching markets in which agents match to institutions that may have multiple slots available to accept contracts. In many real-world institutions, there are restrictions for some slots (if not all) either on slot priorities or on the transferability of unfilled slots over others (or both). We construct a rich family of practical choice rules, slot-specific priorities with capacity transfers (SSPwCT), that utilize both independent slot priorities and transferability of vacant slots. We show that the cumulative offer mechanism (COM) is stable, strategy-proof and respects improvements with regards to SSPwCT choice rules. Transferring the capacity of one more unfilled slot, while all else is constant, leads to strategy-proof Pareto improvement of the COM. We also provide comparative static results for expansion of branch capacity and addition of new contracts. Our results have implications for resource allocation problems with diversity considerations.
    Date: 2020–04
  3. By: Orhan Ayg\"un; Bertan Turhan
    Abstract: Motivated by the need for real-world matching problems, this paper formulates a large class of practical choice rules, Generalized Lexicographic Choice Rules (GLCR), for institutions that consist of multiple divisions. Institutions fill their divisions sequentially, and each division is endowed with a sub-choice rule that satisfies classical substitutability and size monotonicity in conjunction with a new property that we introduce, quota monotonicity. We allow rich interactions between divisions in the form of capacity transfers. The overall choice rule of an institution is defined as the union of the sub-choices of its divisions. The cumulative offer mechanism (COM) with respect to GLCR is the unique stable and strategy-proof mechanism. We define a choice-based improvement notion and show that the COM respects improvements. We employ the theory developed in this paper in our companion paper, Ayg\"un and Turhan (2020), to design satisfactory matching mechanisms for India with comprehensive affirmative action constraints.
    Date: 2020–04
  4. By: Nickesha Ayoade (Concordia University); Szilvia Pápai (Concordia University)
    Abstract: We introduce and study a large family of rules for many-to-one matching problems, the Preference Rank Partitioned (PRP) rules. PRP rules are student-proposing Deferred Acceptance rules, where the schools select among applicants in each round taking into account both the students' preferences and the schools' priorities. In a PRP rule each school first seeks to select students based on priority rank classes, and subsequently based on preference rank classes. PRP rules include many well-known matching rules, such as the standard Deferred Acceptance rule, the Boston rule, the Chinese Application-Rejection rules of Chen and Kesten (2017), the Taiwan Deduction rules of Dur et al. (2018), and the French Priority rules of Bonkoungou (2019), in addition to matching rules that have not been studied yet. We analyze the stability, efficiency and incentive properties of PRP matching rules in this unified framework.
    Keywords: matching; school choice; Deferred Acceptance; Boston rule; stability
    JEL: C78 D61 D78 I20
    Date: 2020–02–22
  5. By: Makoto Hagiwara (Faculty of Economics, Osaka University of Economics, Research Institute for Economics and Business Administration, Kobe University); Fumihiro Yonekura (School of Engineering, Tokyo Institute of Technology)
    Abstract: "King Solomon's Dilemma" is based on a biblical story and this can be considered as an allocation problem for an indivisible object among two players. A social planner wants to assign the object without payment to the player whose valuation is the highest. We say that such an allocation is "first-best." We experimentally compare the relative performance of the mechanism of Mihara (Japanese Economic Review, 63(3), 420-429, 2012) and a mechanism which we modify Mihara's mechanism. We find that a modified Mihara's mechanism relatively works better than Mihara's mechanism from the following five view points: (1) the proportion of the first-best allocations; (2) the proportion of the right-player allocations; (3) resource inefficiency and wrong-player infficiency; (4) net mean efficiency; and (5) players' behavior.
    Keywords: Implementation in iterative elimination of obviously dominated strategies; King Solomon's Dilemma; Mihara's mechanism; Ascending clock auctions; Laboratory experiment
    JEL: C92 D44 D78
    Date: 2020–04
  6. By: Gorman, Emma (University of Westminster); Walker, Ian (Lancaster University)
    Abstract: Schools vary in quality, and high-performing schools tend to be oversubscribed: there are more applicants than places available. In this paper, we use nationally representative cohort data linked to administrative education records to study the consequences of failing to gain admission to one’s first-choice secondary school in England. Our empirical strategy leverages features of the institutional setting and the literature on school choice to make a case for a selection-on-observables identifying assumption. Failing to gain a place at a preferred school had null to small impacts on short-run academic attainment, but was associated with large reductions in mental health and increased fertility in early in adulthood. These effects are especially pronounced in areas which deployed a manipulable assignment mechanism to allocate school places, where we detected larger detrimental effects on high-stakes examination outcomes. A potential channel is increased early engagement in risky behaviours. Our results show that schools are important in shaping more than test scores, and that the workings of the school admission system play a fundamental role in ensuring access to good schools.
    Keywords: risky behaviours, market design, human capital, school choice, education
    JEL: I21 I24 J24 H44 D47
    Date: 2020–04
  7. By: Shino Takayama (School of Economics, University of Queensland)
    Abstract: We study the manipulation of prices in a dynamic version of the Glosten and Milgrom (1985) model with a long-lived informed trader. The conditions under which a unique equilibrium exists are clarified. We show that within the unique equilibrium, bid and ask prices are monotonically increasing functions of the market maker’s belief, and we characterize the situations in which this equilibrium involves manipulation of prices by the informed trader. Finally, we describe a computational method to find equilibria in the model, and give simulation results that confirm and extend our theoretical findings.
    Keywords: Market microstructure; Glosten–Milgrom; Insider trading; Dynamic trading; Price formation; Sequential trade; Asymmetric information; Bid–ask spreads.
    JEL: D82 G12
    Date: 2020–05–05

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