nep-des New Economics Papers
on Economic Design
Issue of 2020‒07‒13
seven papers chosen by
Alex Teytelboym
University of Oxford

  1. An Optimal Distributionally Robust Auction By Alex Suzdaltsev
  2. Reserve Price Optimization for First Price Auctions By Zhe Feng; S\'ebastien Lahaie; Jon Schneider; Jinchao Ye
  3. On the Internal and External Stability of Coalitions and Application to Group Purchasing Organizations By Dongshuang Hou; Aymeric Lardon; Hao Sun
  4. Projection of Private Values in Auctions By Tristan Gagnon-Bartsch; Marco Pagnozzi; Antonio Rosato
  5. Designing Stable Elections: A Survey By Steven Heilman
  6. Optimal Incentives to Give By Castillo, Marco; Petrie, Ragan
  7. Taxation in Matching Markets By Dupuy, Arnaud; Galichon, Alfred; Jaffe, Sonia; Kominers, Scott Duke

  1. By: Alex Suzdaltsev
    Abstract: An indivisible object may be sold to one of $n$ agents who know their valuations of the object. The seller would like to use a revenue-maximizing mechanism but her knowledge of the valuations' distribution is scarce: she knows only the means (which may be different) and an upper bound for valuations. Valuations may be correlated. Using a constructive approach based on duality, we prove that a mechanism that maximizes the worst-case expected revenue among all deterministic dominant-strategy incentive compatible, ex post individually rational mechanisms takes the following form: (1) the bidders submit bids $b_i$; (2) for each bidder, a linear score $s_i=\beta_ib_i-\alpha_i$ is calculated where $\alpha_i$, $\beta_i$ are fixed parameters; (3) the object is awarded to the agent with the highest score, provided it's nonnegative; (4) the winning bidder pays the minimal amount he would need to bid to still win in the auction. The set of optimal mechanisms includes other mechanisms but all those have to be close to the optimal linear score auction in a certain sense. When means are high, all optimal mechanisms share the linearity property. Second-price auction without a reserve is an optimal mechanism when the number of symmetric bidders is sufficiently high.
    Date: 2020–06
  2. By: Zhe Feng; S\'ebastien Lahaie; Jon Schneider; Jinchao Ye
    Abstract: The display advertising industry has recently transitioned from second- to first-price auctions as its primary mechanism for ad allocation and pricing. In light of this, publishers need to re-evaluate and optimize their auction parameters, notably reserve prices. In this paper, we propose a gradient-based algorithm to adaptively update and optimize reserve prices based on estimates of bidders' responsiveness to experimental shocks in reserves. Our key innovation is to draw on the inherent structure of the revenue objective in order to reduce the variance of gradient estimates and improve convergence rates in both theory and practice. We show that revenue in a first-price auction can be usefully decomposed into a \emph{demand} component and a \emph{bidding} component, and introduce techniques to reduce the variance of each component. We characterize the bias-variance trade-offs of these techniques and validate the performance of our proposed algorithm through experiments on synthetic data and real display ad auctions data from Google ad exchange.
    Date: 2020–06
  3. By: Dongshuang Hou (Department of Applied Mathematics, Northwestern Polytechnical University, Xi'an, China); Aymeric Lardon (Univ Lyon, UJM Saint-Etienne, GATE UMR 5824, F-42023 Saint Etienne, France); Hao Sun (Department of Applied Mathematics, Northwestern Polytechnical University, Xi'an, China)
    Abstract: Two new notions of stability of coalitions, based on the idea of exclusion or integration of players depending on how they affect allocations, are introduced for cooperative transferable utility games. The first one, called internal stability, requires that no coalition member would find that her departure from the coalition would improve her allocation or those of all her partners. The second one, called external stability, requires that coalitions members do not wish to recruit a new partner willing to join the coalition, since her arrival would hurt some of them. As an application of these two notions, we study the stability of Group Purchasing Organizations using the Shapley value to allocate costs between buyers. Our main results suggest that, when all buyers are initially alone, while small buyers will form internally and externally stable Group Purchasing Organizations to benefit from the best price discount, big buyers will be mutually exclusive and may cooperate with only small buyers.
    Keywords: Internal and external stability, Group purchasing organization, Cost allocation, Shapley value
    JEL: C71 D61 D62
    Date: 2020
  4. By: Tristan Gagnon-Bartsch (Harvard University); Marco Pagnozzi (Università di Napoli Federico II and CSEF); Antonio Rosato (University of Technology Sydney)
    Abstract: We explore how taste projection – the tendency to overestimate how similar others’ tastes are to one’s own – affects bidding in auctions. Taste-projecting bidders underestimate the dispersion in valuations and exaggerate the intensity of competition. Consequently, they overbid in firstprice auctions – irrespective of whether values are independent, correlated, or (a)symmetrically distributed – but not in second-price auctions. Hence, first-price auctions raise more revenue. Moreover, the optimal reserve price in first-price auctions is lower than the rational benchmark, and decreasing in the extent of projection and the number of bidders. With an uncertain common-value component, projecting bidders draw distorted inferences about others’ information. This misinference is stronger in second-price and English auctions, reducing their allocative efficiency compared to first-price auctions.
    Keywords: Auctions; Projection Bias; False-Consensus Effect; Overbidding.
    JEL: D03 D44 D82 D83
    Date: 2020–06–24
  5. By: Steven Heilman
    Abstract: We survey the design of elections that are resilient to attempted interference by third parties. For example, suppose votes have been cast in an election between two candidates, and then each vote is randomly changed with a small probability, independently of the other votes. It is desirable to keep the outcome of the election the same, regardless of the changes to the votes. It is well known that the US electoral college system is about 5 times more likely to have a changed outcome due to vote corruption, when compared to a majority vote. In fact, Mossel, O'Donnell and Oleszkiewicz proved in 2005 that the majority voting method is most stable to this random vote corruption, among voting methods where each person has a small influence on the election. We discuss some recent progress on the analogous result for elections between more than two candidates. In this case, plurality should be most stable to corruption in votes. We also survey results on adversarial election manipulation (where an adversary can select particular votes to change, perhaps in a non-random way), and we briefly discuss ranked choice voting methods (where a vote is a ranked list of candidates).
    Date: 2020–06
  6. By: Castillo, Marco (Texas A&M University); Petrie, Ragan (Texas A&M University)
    Abstract: We examine optimal incentives for charitable giving with a large-scale field experiment involving 26 charities and over 112,000 unique individuals. The price of giving is varied by offering a fixed match if the donation meets a threshold amount (e.g. "give at least $25 and the charity receives a $25 match"). Responses are used to structurally estimate a model of charitable giving. The model estimates are employed to evaluate the effectiveness of various counterfactual match incentive schemes, taking into account the goals of the charity and donor preferences. Two of these optimal incentives were subsequently implemented in a follow-up field study. They were found to be effective at implementing the desired goals, as predicted by theory and our simulations. Our findings highlight the pitfalls of relying on a particular parameterization of a policy to evaluate effectiveness. The best-guess incentives in our initial field experiment turned out to be ineffective at increasing donations because optimal incentives should have been set higher.
    Keywords: charitable giving, mechanism design, field experiment
    JEL: D64 H41 C93 D91
    Date: 2020–06
  7. By: Dupuy, Arnaud (University of Luxembourg); Galichon, Alfred (New York University); Jaffe, Sonia (University of Chicago); Kominers, Scott Duke (Harvard University)
    Abstract: We analyze the effects of taxation in two-sided matching markets where agents have heterogeneous preferences over potential partners. Our model provides a continuous link between models of matching with and without transfers. Taxes generate inefficiency on the allocative margin, by changing who matches with whom. This allocative inefficiency can be non-monotonic, but is weakly increasing in the tax rate under linear taxation if each worker has negative non-pecuniary utility of working. We adapt existing econometric methods for markets without taxes to our setting, and estimate preferences in the college-coach football market. We show through simulations that standard methods inaccurately measure deadweight loss.
    Keywords: matching, taxation
    JEL: C78 D3 H2 J3
    Date: 2020–06

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