nep-des New Economics Papers
on Economic Design
Issue of 2020‒07‒27
eight papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Incentives and Efficiency in Constrained Allocation Mechanisms By Joseph Root; David S. Ahn
  2. Unraveling of Value-Rankings in Auctions with Resale By Sanyyam Khurana
  3. Randomized Double Auctions: Gains from Trade, Trader Roles, and Price Discovery By Katerina Sherstyuk; Krit Phankitnirundorn; Michael J. Roberts
  4. Learning Management Through Matching: A Field Experiment Using Mechanism Design By Abebe, Girum; Fafchamps, Marcel; Koelle, Michael; Quinn, Simon
  5. Goal-Oriented Agents in a Market By Inés Macho-Stadler; David Pérez-Castrillo; Nicolas Quérou
  6. Expectational Equilibria in Many-to-one Matching Models with Contracts - A Reformulation of Competitive Equilibrium By Herings, P. Jean-Jacques
  7. Project selection with partially verifiable information By Sumit Goel; Wade Hann-Caruthers
  8. Optimal Attention Management: A Tractable Framework By Elliot Lipnowski; Laurent Mathevet; Dong Wei

  1. By: Joseph Root; David S. Ahn
    Abstract: We study private-good allocation mechanisms where an arbitrary constraint delimits the set of feasible joint allocations. This generality provides a unified perspective over several prominent examples that can be parameterized as constraints in this model, including house allocation, roommate assignment, and social choice. We first characterize the set of two-agent strategy-proof and Pareto efficient mechanisms, showing that every mechanism is a "local dictatorship." For more than two agents, we leverage this result to provide a new characterization of group strategy-proofness. In particular, an N-agent mechanism is group strategy-proof if and only if all its two-agent marginal mechanisms (defined by holding fixed all but two agents' preferences) are individually strategy-proof and Pareto efficient. To illustrate their usefulness, we apply these results to the roommates problem to discover the novel finding that all group strategy-proof and Pareto efficient mechanisms are generalized serial dictatorships, a new class of mechanisms. Our results also yield a simple new proof of the Gibbard-Satterthwaite Theorem.
    Date: 2020–06
  2. By: Sanyyam Khurana (Department of Economics, Delhi School of Economics)
    Abstract: Consider a single-unit auction with resale and two risk neutral bidders. The ranking of the valuations is known to both the bidders—that is, the bidders know the identity of the highest and lowest valuation bidders. We show that, with the revelation of value-rankings, the classic result of “bid symmetrization” does not hold. Surprisingly, the bidder with the lowest valuation produces a stronger bid distribution than the bidder with the highest valuation. We also show that the revelation of value-rankings in auctions with resale asymmetrizes the bidding strategies. Finally, under restrictive assumptions, we compare seller’s and bidders’ ranking of a first-price and second-price auction.
    JEL: D44 D82
    Date: 2020–06
  3. By: Katerina Sherstyuk (University of Hawaii at Manoa, Department of Economics); Krit Phankitnirundorn (University of Hawaii at Manoa, Department of Economics); Michael J. Roberts (University of Hawaii at Manoa, Department of Economics)
    Abstract: Experimental double-auction commodity markets are known to exhibit robust convergence to competitive equilibria under stable or cyclical supply and demand conditions, but little is known about their performance in truly random environments. We provide a comprehensive study of double auctions in a stochastic setting where the equilibrium prices, trading volumes and gains from trade are highly variable across periods, and with commodity traders who may buy or sell their goods depending on market conditions and their individual outcomes. We find that performance in this stochastic environment is sensitive to underlying market conditions. Efficiency is higher and convergence to the competitive equilibrium stronger when the potential gains from trade are high and when the equilibrium spans a wide range of quantities, implying a large number of marginal trades. Speculative re-trading is prevalent, especially for individual traders who have little to gain under equilibrium pricing, leading to some redistribution of gains from high to low expected earners. Those with the largest expected gains typically earn far less than predicted, while those with little or no predicted earnings gain modestly from speculation. Excessive trading volumes are associated with negative efficiencies in markets with low gains from trade, but not in the high-gains markets, where zero-sum trading and re-trading appear not to obstruct and possibly enforce efficiency and near-equilibrium pricing. Buyers earn more relative to their competitive equilibrium benchmark than sellers do. Introducing trader specialization leads to fewer trading errors and higher market efficiency, but it does not eliminate zero-sum trading and re trading.
    Keywords: economic experiments; double auction markets; gains from trade; speculation
    JEL: C92 D02 D41
    Date: 2020–07
  4. By: Abebe, Girum; Fafchamps, Marcel; Koelle, Michael; Quinn, Simon
    Abstract: We place young professionals into established firms to shadow middle managers. Using random assignment into program participation, we find positive average effects on wage employment, but no average effect on the likelihood of self-employment. We match individuals to firms using a deferred-acceptance algorithm, and show how this allows us to identify heterogeneous treatment effects by firm and intern characteristics. We find striking heterogeneity in self-employment effects, and show that some assignment mechanisms can substantially outperform random matching in generating employment and income effects. These results demonstrate the potential for matching algorithms to improve the design of field experiments.
    Keywords: causal inference; field experiments; Management Practices; Propensity score; Self-employment
    Date: 2020–01
  5. By: Inés Macho-Stadler; David Pérez-Castrillo; Nicolas Quérou
    Abstract: We consider a market where "standard" risk-neutral agents coexist with "goal-oriented" agents who, in addition to the expected income, seek a high-enough monetary payoff¤ (the "trigger") to fulfill a goal. We analyze a two-sided one-to-one matching model where the matching between principals and agents and the incentive contracts are endogenous. In any equilibrium contract, goal-oriented agents are matched with the principals with best projects and receive the trigger with a positive probability. Moreover, goal and monetary incentives are complementary since goal- oriented agents receive stronger monetary incentives than standard agents. Finally, we discuss policy interventions in relevant environments.
    Keywords: goal-oriented agents, Incentives, matching market
    JEL: D82 D86
    Date: 2020–07
  6. By: Herings, P. Jean-Jacques (RS: GSBE Theme Data-Driven Decision-Making, RS: GSBE Theme Conflict & Cooperation, Microeconomics & Public Economics)
    Abstract: We introduce the notion of expectational equilibrium in a very general specification of the many-to-one matching with contracts model. The endogenous variables in an expectational equilibrium are expectations about tradable contracts. Expectational equilibrium outcomes are equivalent to stable outcomes. Substitutability of preferences is a sufficient condition for existence. Expectational equilibrium unifies all the other approaches used in the literature so far, in particular Walrasian equilibrium, Drèze equilibrium, and market clearing cutoffs. It also applies to cases where contracts do not involve money as well as cases where there is a smallest monetary unit of account.
    JEL: C71 C78 D45 D51
    Date: 2020–07–02
  7. By: Sumit Goel; Wade Hann-Caruthers
    Abstract: We consider a problem where the principal chooses a project from a set of available projects for the agent to work on. Each project provides some profit to the principal and some payoff to the agent and these profits and payoffs are the agent's private information. The principal has a belief over these values and his problem is to find an incentive compatible mechanism without using transfers that maximizes expected profit. Importantly, we assume partial verifiability so that the agent cannot report a project to be more profitable to the principal than it actually is. In this setup, we find a neat characterization of the set of incentive compatible mechanisms. Using this characterization, we find the optimal mechanism for the principal when there are two projects. Within a subclass of incentive compatible mechanisms, we show that a single cutoff mechanism is optimal and conjecture that it is the optimal incentive compatible mechanism.
    Date: 2020–07
  8. By: Elliot Lipnowski; Laurent Mathevet; Dong Wei
    Abstract: A well-intentioned principal provides information to a rationally inattentive agent without internalizing the agent's cost of processing information. Whatever information the principal makes available, the agent may choose to ignore some. We study optimal information provision in a tractable model with quadratic payoffs where full disclosure is not optimal. We characterize incentive-compatible information policies, that is, those to which the agent willingly pays full attention. In a leading example with three states, optimal disclosure involves information distortion at intermediate costs of attention. As the cost increases, optimal information abruptly changes from downplaying the state to exaggerating the state.
    Date: 2020–06

This nep-des issue is ©2020 by Guillaume Haeringer and Alex Teytelboym. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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