nep-des New Economics Papers
on Economic Design
Issue of 2020‒06‒15
twelve papers chosen by
Alex Teytelboym
University of Oxford

  1. Fractional Top Trading Cycle on the Full Preference Domain By Jingsheng Yu; Jun Zhang
  2. Two-Sided Random Matching Markets: Ex-Ante Equivalence of the Deferred Acceptance Procedures By Simon Mauras
  3. The Equivalence of the Minimal Dominant Set and the Myopic Stable Set for Coalition Function Form Games By Herings, P. Jean-Jacques; Kóczy, László Ã .
  4. Coalition and Core in Resource Allocation and Exchange By Jun Zhang
  5. Efficient Bilateral Trade with Interdependent Values: The Use of Two-Stage Mechanisms By Kunimoto, Takashi; Zhang, Cuiling
  6. Renegotiation and Coordination with Private Values By Yuval Heller; Christoph Kuzmics
  7. Funding Public Projects: A Case for the Nash Product Rule By Florian Brandl; Felix Brandt; Dominik Peters; Christian Stricker; Warut Suksompong
  8. Rules, Discretion, and Corruption in Procurement: Evidence from Italian Government Contracting By Francesco Decarolis; Raymond Fisman; Paolo Pinotti; Silvia Vannutelli
  9. Search Frictions and Efficiency in Decentralized Transport Markets By Giulia Brancaccio; Myrto Kalouptsidi; Theodore Papageorgiou; Nicola Rosaia
  10. Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry By Kory Kroft; Yao Luo; Magne Mogstad; Bradley Setzler
  11. Zero-Intelligence vs. Human Agents: An Experimental Analysis of the Efficiency of Double Auctions and Over-the-Counter Markets of Varying Sizes By Giuseppe Attanasi; Samuele Centorrino; Elena Manzoni
  12. Information Disclosure in Elections with Sequential Costly Participation By Dmitriy Vorobyev

  1. By: Jingsheng Yu; Jun Zhang
    Abstract: Efficiency and fairness are two desiderata in market design. Fairness requires randomization in many environments. Observing the inadequacy of Top Trading Cycle (TTC) to incorporate randomization, Yu and Zhang (2020) propose the class of Fractional TTC mechanisms to solve random allocation problems efficiently and fairly. The assumption of strict preferences in the paper restricts the application scope. This paper extends Fractional TTC to the full preference domain in which agents can be indifferent between objects. Efficiency and fairness of Fractional TTC are preserved. As a corollary, we obtain an extension of the probabilistic serial mechanism in the house allocation model to the full preference domain. Our extension does not require any knowledge beyond elementary computation.
    Date: 2020–05
  2. By: Simon Mauras
    Abstract: Stable matching in a community consisting of $N$ men and $N$ women is a classical combinatorial problem that has been the subject of intense theoretical and empirical study since its introduction in 1962 in a seminal paper by Gale and Shapley. When the input preference profile is generated from a distribution, we study the output distribution of two stable matching procedures: women-proposing-deferred-acceptance and men-proposing-deferred-acceptance. We show that the two procedures are ex-ante equivalent: that is, under certain conditions on the input distribution, their output distributions are identical. In terms of technical contributions, we generalize (to the non-uniform case) an integral formula, due to Knuth and Pittel, which gives the probability that a fixed matching is stable. Using an inclusion-exclusion principle on the set of rotations, we give a new formula which gives the probability that a fixed matching is the women/men-optimal stable matching. We show that those two probabilities are equal with an integration by substitution.
    Date: 2020–05
  3. By: Herings, P. Jean-Jacques (RS: GSBE Theme Data-Driven Decision-Making, RS: GSBE Theme Conflict & Cooperation, Microeconomics & Public Economics); Kóczy, László Ã .
    Abstract: In cooperative games, the coalition structure core is, despite its potential emptiness, one of the most popular solutions. While it is a fundamentally static concept, the consideration of a sequential extension of the underlying dominance correspondence gave rise to a selection of non-empty generalizations. Among these, the payoff-equivalence minimal dominant set and the myopic stable set are defined by a similar set of conditions. We identify some problems with the payoff-equivalence minimal dominant set and propose an appropriate reformulation called the minimal dominant set. We show that replacing asymptotic external stability by sequential weak dominance leaves the myopic stable set unaffected. The myopic stable set is therefore equivalent to the minimal dominant set.
    JEL: C71
    Date: 2020–06–09
  4. By: Jun Zhang
    Abstract: In discrete exchange economies with possibly redundant and joint ownership, the conventional strong core may be empty, while the weak core may include unintuitive outcomes. We propose new core notions in the conventional flavor by regarding endowments as rights to consume or trade with others. Our key idea is to identify self-enforcing coalitions and to redistribute their redundant property rights. Our first notion lies between the strong core and the weak core and is independent of Balbuzanov and Kotowski's (2019) exclusion core. Our second notion refines the first and the exclusion core by combining their different merits. We generalize the You Request My House - I Get Your Turn mechanism to find our core allocations.
    Date: 2020–05
  5. By: Kunimoto, Takashi (School of Economics, Singapore Management University); Zhang, Cuiling (School of Economics, Singapore Management University)
    Abstract: As efficient, voluntary bilateral trades are generally not incentive compatible in an interdependent-value environment (Fieseler, Kittsteiner, Moldovanu (2003) and Gresik (1991)), we seek for more positive results by employing two-stage mechanisms (Mezzetti (2004)). We say that a two-stage mechanism satisfies incentive compatibility if the truth-telling in both stages constitutes an equilibrium strategy.First, we show by means of a stylized example that the generalized two-stage Groves mechanism never guarantees voluntary trade, while it satisfies efficiency and incentive compatibility. In a general environment, we next propose Assumption 1 under which there exists a two-stage incentive compatible mechanism implementing an efficient, voluntary trade. Third, within the same example, we confirm that our Assumption 1 is very weak because it holds as long as the buyer’s degree of interdependence of preferences is not too high relative to the seller’s counterpart. Finally, we show by the same example that if Assumption 1 is violated, our proposed two-stage mechanism fails to achieve voluntary trade.
    Keywords: Bilateral trade; interdependent values; two-stage mechanisms
    JEL: C72 D78 D82
    Date: 2020–05–01
  6. By: Yuval Heller; Christoph Kuzmics
    Abstract: We define and characterize the set of renegotiation-proof equilibria of coordination games with pre-play communication in which players have private preferences over the feasible coordinated outcomes. Renegotiation-proof equilibria provide a narrow selection from the large set of qualitatively diverse Bayesian Nash equilibria in such games. They are such that players never mis-coordinate, play their jointly preferred outcome whenever there is one, and communicate only the ordinal part of their preferences. Moreover, they are robust to changes in players beliefs, interim Pareto efficient, and evolutionarily stable.
    Date: 2020–05
  7. By: Florian Brandl; Felix Brandt; Dominik Peters; Christian Stricker; Warut Suksompong
    Abstract: We study a mechanism design problem where a community of agents wishes to fund public projects via voluntary monetary contributions by the community members. This serves as a model for participatory budgeting without an exogenously available budget, as well as donor coordination when interpreting charities as public projects and donations as contributions. Our aim is to identify a mutually beneficial distribution of the individual contributions. In the preference aggregation problem that we study, agents report linear utility functions over projects together with the amount of their contributions, and the mechanism determines a socially optimal distribution of the money. We identify a specific mechanism---the Nash product rule---which picks the distribution that maximizes the product of the agents' utilities. This rule is Pareto efficient, and we prove that it satisfies attractive incentive properties: the Nash rule spends an agent's contribution only on projects the agent finds acceptable, and it provides strong participation incentives. We also discuss issues of strategyproofness and monotonicity.
    Date: 2020–05
  8. By: Francesco Decarolis (Bocconi University, IGIER); Raymond Fisman (Boston University); Paolo Pinotti (Bocconi University, BAFFI-CAREFIN); Silvia Vannutelli (Boston University)
    Abstract: The benefits of bureaucratic discretion depend on the extent to which it is used for public benefit versus exploited for private gain. We study the relationship between discretion and corruption in Italian government procurement auctions, using a confidential database of firms and procurement officials investigated for corruption by Italian enforcement authorities. Based on a regression discontinuity design around thresholds for discretion, we find that, overall, a large increase in the use of discretionary procedures in the 2000s led to a minimal increase in auctions won by investigated firms. To understand this ‘non-result,’ we further investigate the attributes of “corrupted†auctions. We show that discretionary procedure auctions are associated with corruption only when conducted with fewer than the formally required number of bidders; similarly, discretionary criteria (“scoring rule†rather than first price) auctions are won more often by investigated firms. We further show that these “corruptible†discretionary auctions are chosen more often by officials who are themselves investigated for corruption, but less often in procurement administrations in which at least one official is investigated for corruption. These findings fit with a framework in which more discretion leads to greater efficiency as well as more opportunities for theft, and a central monitor manages this trade-off by limiting discretion for high-corruption procedures and locales. Additional results based on two standard tools for curbing corruption – turnover and subcontracting limits – corroborate this interpretation. Overall, our results imply that discretion is under-utilized, given the high potential benefits as compared to the modest increment in corruption.
    Keywords: Corruption, Procurement, Bureaucracy, Competition, Bribes
    JEL: C73 D72 D73 K42
    Date: 2019–12
  9. By: Giulia Brancaccio (Cornell University); Myrto Kalouptsidi (Harvard University); Theodore Papageorgiou (Boston College); Nicola Rosaia (Harvard University)
    Abstract: In this paper we explore efficiency and optimal policy in decentralized transportation markets that suffer from search frictions, such as taxicabs, trucks and bulk shipping. We illustrate the impact of two externalities: the well-known thin/thick market externalities and what we call pooling externalities. We characterize analytically the conditions for efficiency, show how they translate into efficient pricing rules, as well as derive the optimal taxes for the case where the planner is not able to set prices. We use our theoretical results to explore welfare loss and optimal policy in dry bulk shipping. We find that the constrained efficient allocation achieves 6% welfare gains, while the first-best allocation corresponding to the frictionless world, achieves 14% welfare gains. This suggests that policy can achieve substantial gains, even if it does not alleviate search frictions, e.g. through a centralizing platform. Finally, we demonstrate that simple policies designed to mimic the optimal taxes perform well.
    Keywords: search, friction, efficiency, transport, optimal policy
    JEL: F1 L0 L91 R4 R48
    Date: 2020–05–15
  10. By: Kory Kroft; Yao Luo; Magne Mogstad; Bradley Setzler
    Abstract: The primary goal of our paper is to quantify the importance of imperfect competition in the U.S. construction industry by estimating the size of rents earned by American firms and workers. To obtain a comprehensive measure of the total rents and to understand its sources, we take into account that rents may arise both due to markdown of wages and markup of prices. Our analyses combine the universe of U.S. business and worker tax records with newly collected records from U.S. procurement auctions. We first examine how firms respond to a plausibly exogenous shift in product demand through a difference-in-differences design that compares first-time procurement auction winners to the firms that lose, both before and after the auction. Motivated and guided by these estimates, we next develop, identify, and estimate a model where construction firms compete with one another for projects in the product market and for workers in the labor market. The firms may participate both in the private market and in government projects, the latter of which are procured through first-price sealed-bid auctions. We find that American construction firms have significant wage- and price-setting power. This imperfect competition generates a considerable amount of rents, two-thirds of which is captured by the firms. Lastly, we use the estimated model to perform counterfactual analyses which reveal how increases in the market power of firms, in the product market or the labor market, would affect the outcomes and behavior of workers and firms in the construction industry.
    Keywords: imperfect competition; monopsony; market power; rents; rent sharing; auction; procurement
    JEL: J31 J42 D44 L11
    Date: 2020–06–06
  11. By: Giuseppe Attanasi (University of Côte d’Azur, Nice); Samuele Centorrino (Stony Brook University); Elena Manzoni (Department of Economics (University of Verona))
    Abstract: We study two well-known electronic markets: an over-the-counter (OTC) market, in which each agent looks for the best counterpart through bilateral negotiations, and a double auc- tion (DA) market, in which traders post their quotes publicly. We focus on the DA-OTC efficiency gap and show how it varies with different market sizes (10, 20, 40, and 80 traders). We compare experimental results from a sample of 6,400 undergraduate students in Economics with zero-intelligent (ZI) agent-based simulations. Simulations with ZI traders show that the traded quantity (with respect to the efficient one) increases with market size under both DA and OTC. Experimental results with human traders confirm the same tendency under DA, while the share of periods in which the traded quantity is higher (lower) than the efficient one decreases (increases) with market size under OTC, ultimately leading to a DA-OTC efficiency gap increasing with market size. We rationalize these results by putting forward a novel game-theoretical model of OTC market as a repeated bargaining procedure under incomplete information on buyers’ valuations and sellers’ costs, showing how efficiency decreases slightly with size due to two counteracting effects: acceptance rates in earlier periods decrease with size, and earlier offers increase, but not always enough to compensate the decrease in acceptance rates.
    Keywords: Market Design, Classroom Experiment, Agent-based Modelling, Game-theoretic Modelling.
    JEL: C70 C91 C92 D41 D47
    Date: 2020–03
  12. By: Dmitriy Vorobyev (Graduate School of Economics and Management, Ural Federal University, Yekaterinburg, Russia; CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences, Prague, Czech Republic)
    Abstract: Electoral legislation varies across countries and within countries over time, and across different types of elections in terms of how it allows publication of intermediate election results including turnout and candidates’ vote shares during an election day. Using a pivotal costly voting model of elections in which voters have privately observed preferences between two candidates and act sequentially, I study how different rules for disclosing information about the actions of early voters affect the actions of later voters, and how they ultimately impact voter and candidate welfare. Comparing three rules observed in real life elections (no disclosure, turnout disclosure and vote count disclosure), I find that vote count disclosure dominates the other two rules in terms of voter welfare. I further show that each of the rules can provide a candidate with either the greatest or the least chance to win, depending on the candidate’s ex-ante support.
    Keywords: voting, participation, information disclosure
    JEL: D71 D72 D83
    Date: 2020–05

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