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on Economic Design |
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Issue of 2020‒06‒29
ten papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Peter Butler; Jerry Lin |
| Abstract: | Plurality and approval voting are two well-known voting systems with different strengths and weaknesses. In this paper we consider a new voting system we call beta(k) which allows voters to select a single first-choice candidate and approve of any other number of candidates, where k denotes the relative weight given to a first choice; this system is essentially a hybrid of plurality and approval. Our primary goal is to characterize the behavior of beta(k) for any value of k. Under certain reasonable assumptions, beta(k) can be made to mimic plurality or approval voting in the event of a single winner while potentially breaking ties otherwise. Under the assumption that voters are honest, we show that it is possible to find the values of k for which a given candidate will win the election if the respective approval and plurality votes are known. Finally, we show how some of the commonly used voting system criteria are satisfied by beta(k). |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2006.00368&r=all |
| By: | Andrea Attar (TSE - Toulouse School of Economics - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UT1 - Université Toulouse 1 Capitole); Thomas Mariotti (TSE - Toulouse School of Economics - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UT1 - Université Toulouse 1 Capitole); Francois Salanie (TSE - Toulouse School of Economics - EHESS - École des hautes études en sciences sociales - INRA - Institut National de la Recherche Agronomique - CNRS - Centre National de la Recherche Scientifique - UT1 - Université Toulouse 1 Capitole) |
| Abstract: | We study a discriminatory limit-order book in which market makers compete in nonlinear tariffs to serve a privately informed insider. Our model allows for general nonparametric specifications of preferences and arbitrary discrete distributions for the insider's private information. Adverse selection severely restricts equilibrium outcomes: in any pure-strategy equilibrium with convex tariffs, pricing must be linear and at most one type can trade, leading to an extreme form of market breakdown. As a result, such equilibria exist only under exceptional circumstances that we fully characterize. These results are strikingly different from those of existing analyses that postulate a continuum of types. The two approaches can be reconciled when we consider epsilon-equilibria of games with a large number of market makers or a large number of types. |
| Keywords: | adverse selection,competing mechanism,limit-order book |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02097209&r=all |
| By: | Hinnosaar, Toomas; Kawai, Keiichi |
| Abstract: | Before purchase, a buyer of an experience good learns about the product's fit using various information sources, including some of which the seller may be unaware of. The buyer, however, can conclusively learn the fit only after purchasing and trying out the product. We show that the seller can use a simple mechanism to best take advantage of the buyer's post-purchase learning to maximize his guaranteed-profit. We show that this mechanism combines a generous refund, which performs well when the buyer is relatively informed, with non-refundable random discounts, which work well when the buyer is relatively uninformed. |
| Keywords: | information design; mechanism design; Monopoly; Optimal Pricing; refunds; return policies; robustness |
| JEL: | C79 D42 D82 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14615&r=all |
| By: | Giulia Brancaccio; Myrto Kalouptsidi; Theodore Papageorgiou; Nicola Rosaia |
| 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. |
| JEL: | F1 L0 L91 R4 R48 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:27300&r=all |
| By: | Irene Lo; Vahideh Manshadi; Scott Rodilitz; Ali Shameli |
| Abstract: | We study the design of a decentralized platform in which workers and jobs repeatedly match, and their future engagement with the platform depends on whether they successfully find a match. The platform offers two types of matches to workers: an "adopted match" which entails repeatedly matching with the same job or a one-time match. Due to randomness in match compatibility, adoption seems favorable as it reduces uncertainty in matching. However, high adoption levels reduce the number of available jobs, which in turn can suppress future worker engagement if the remaining workers cannot find a match. To optimally resolve the trade-off between adoption and maintaining available options, we develop a random market model that captures the heterogeneity in workers' future engagement based on match type. Our analysis reveals that the optimal policy for maximizing the matching in a single period is either full or no adoption. For sufficiently thick markets, we show that the optimal single-period policy is also optimal for maximizing the total discounted number of matches. In thinner markets, even though a static policy of full or no adoption can be suboptimal, it achieves a constant-factor approximation where the factor improves with market thickness. |
| Date: | 2020–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2005.10731&r=all |
| By: | Sela, Aner |
| Abstract: | We study two-sided matching contests with two sets of agents, each of which includes n heterogeneous agents with commonly known types. In the first stage, the agents simultaneously send their costly efforts and then the order of choosing a partner from the other set is determined according to the Tullock contest success function. In the second stage, each agent chooses a partner from the other set, and an agent has a positive revenue if there is a matching in which he chooses a partner from the other set and this partner also chooses him. We analyze the agents' equilibrium efforts in the first stage as well as their choices of partners in the second stage, and demonstrate that if the agents' values, which are functions of the types of the agents who are matched, are either multiplicative or additive, their efforts are not necessarily monotonically increasing in their types. |
| Keywords: | Matching; Tullock contest |
| JEL: | D44 D72 D82 J31 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14610&r=all |
| By: | Tomohiko Kawamori |
| Abstract: | We consider contest success functions (CSFs) that extract contestants' values of the prize. In the case in which the values are observable to the contest designer, in the more-than-two-contestant or common-value subcase, we present a CSF extractive in any equilibrium; in the other subcase, we present a CSF extractive in some equilibrium, but there exists no CSF extractive in any equilibrium. In the case in which the values are not observable, there exists no CSF extractive in some equilibrium. In the case in which the values are observable and common, we present extractive a CSF extractive in any equilibrium; we present a class of CSFs extractive in some equilibrium, and this class can control the number of active contestants. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2006.01808&r=all |
| By: | Sela, Aner |
| Abstract: | We study two-sided matching contests with two sets, A and B, each of which includes a finite number of heterogeneous agents with commonly known types. The agents in each set compete in Tullock contests where they simultaneously send their costly efforts, and then are assortatively matched, namely, the winner of set A is matched with the winner of set B and so on until all the agents in the set with the smaller number of agents are matched. We analyze the agents' equilibrium efforts for which an agent's match-value is either a multiplicative or an additive function of the types who are matched. We demonstrate that whether or not both sets have the same number of agents might have a critical effect on their equilibrium efforts. In particular, a little change in the size of one of the sets might have a radical effect on the agents' equilibrium efforts. |
| Keywords: | Tullock contest; Two-sided matching |
| JEL: | D44 D72 D82 J31 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14598&r=all |
| By: | Itzhak Rasooly; Carlos Gavidia-Calderon |
| Abstract: | While auction theory views bids and valuations as continuous variables, real-world auctions are necessarily discrete. In this paper, we use a combination of analytical and computational methods to investigate whether incorporating discreteness substantially changes the predictions of auction theory, focusing on the case of uniformly distributed valuations so that our results bear on the majority of auction experiments. In some cases, we find that introducing discreteness changes little. For example, the first-price auction with two bidders and an even number of values has a symmetric equilibrium that closely resembles its continuous counterpart and converges to its continuous counterpart as the discretisation goes to zero. In others, however, we uncover discontinuity results. For instance, introducing an arbitrarily small amount of discreteness into the all-pay auction makes its symmetric, pure-strategy equilibrium disappear; and appears (based on computational experiments) to rob the game of pure-strategy equilibria altogether. These results raise questions about the continuity approximations on which auction theory is based and prompt a re-evaluation of the experimental literature. |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2006.03016&r=all |
| By: | L\'aszl\'o Csat\'o; D\'ora Gr\'eta Petr\'oczy |
| Abstract: | The standard design of soccer penalty shootouts has received serious criticism due to its bias towards the team that kicks the first penalty. The rule-making body of the sport has decided in 2017 to try an alternative mechanism. Although the adoption of the new policy has stalled, academic researchers have recently suggested some other designs to improve fairness. This paper offers an extensive overview of seven such soccer penalty shootout mechanisms, one of them first defined here. Their fairness are analysed in three different mathematical models of psychological pressure. We also consider the probability of reaching the sudden death stage, as well as the complexity and strategy-proofness of the designs. Some rules are found to be inferior as they do not lead to a substantial gain in fairness compared to simpler mechanisms. Our work has the potential to impact decision-makers who can save resources by choosing only theoretically competitive designs for field experiments. |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2004.09225&r=all |