nep-des New Economics Papers
on Economic Design
Issue of 2020‒08‒17
eleven papers chosen by
Alex Teytelboym
University of Oxford

  1. Robust minimal instability of the top trading cycles mechanism By Battal Dogan; Lars Ehlers
  2. What happens when separate and unequal school districts merge? By Aue, Robert; Klein, Thilo; Ortega, Josué
  3. Blocking pairs versus blocking students: Stability comparisons in school choice By Battal Dogan; Lars Ehlers
  4. Serial Vickrey Mechanism By Yu Zhou; Shigehiro Serizawa
  5. Brexit: Dynamic Voting with an Irreversible Option By Moldovanu, Benny; Rosar, Frank
  6. Strategy-proof choice under monotonic additive preferences By Eric Bahel; Yves Sprumont
  7. Priority Rules By Degryse, Hans; Karagiannis, Nikolaos
  8. Goal-oriented agents in a market By Ines Macho-Stadler; David Pérez-Castrillo; Nicolas Quérou
  9. Automated Market Makers By Mohsen Pourpouneh; Kurt Nielsen; Omri Ross
  10. Two-stage majoritarian choice By Sean Horan; Yves Sprumont
  11. Efficient Incentives in Social Networks: Gamification and the Coase Theorem By Daske, Thomas

  1. By: Battal Dogan (University of Bristol); Lars Ehlers (Université de Montréal)
    Abstract: In the context of priority-based resource allocation, we formulate methods to compare assignments in terms of their stability as binary relations (on the set of possible assignments) that depend on the preference and the priority profile. We introduce three basic properties, stability preferred, separability, and consistency, that a reasonable stability comparison should satisfy. We show that, for any stability comparison satisfying the three properties, the top trading cycles (TTC) mechanism is minimally unstable among efficient and strategy-proof mechanisms in one-to-one matching. An important consequence is the robustness of a recent result by Abdulkadiroglu et al. (2019), which uses a particular stability comparison method where an assignment is more stable than another assignment if the set of blocking pairs in the former assignment is a subset of the set of blocking pairs in the latter assignment. Our unifying approach covers basically all natural comparison methods and it includes many cardinal stability comparison methods as special cases.
    Date: 2020–03
  2. By: Aue, Robert; Klein, Thilo; Ortega, Josué
    Abstract: We study the welfare effects of school district consolidation, i.e. the integration of disjoint school districts into a centralised clearinghouse. We show theoretically that, in the worst-case scenario, district consolidation may unambiguously reduce students' welfare, even if the student-optimal stable matching is consistently chosen. However, on average all students experience expected welfare gains from district consolidation, particularly those who belong to smaller and over-demanded districts. Using data from the Hungarian secondary school assignment mechanism, we compute the actual welfare gains from district consolidation in Budapest and compare these to our theoretical predictions. We empirically document substantial welfare gains from district consolidation for students, equivalent to attending a school five kilometres closer to the students' home addresses. As an important building block of our empirical strategy, we describe a method to consistently estimate students' preferences over schools and vice versa that does not fully assume that students report their preferences truthfully in the student-proposing deferred acceptance algorithm.
    Keywords: school district consolidation,integration of matching markets,preference estimation without truth-telling
    JEL: C78 I21
    Date: 2020
  3. By: Battal Dogan (University of Bristol); Lars Ehlers (Université de Montréal)
    Abstract: It is known that there are school choice problems without an efficient and stable assignment. We consider comparing assignments in terms of their stability by comparing their sets of blocking (student-school) pairs or comparing their sets of blocking students who are involved in at least one blocking pair. Although there always exists a Pareto improvement over the student-optimal stable (DA) assignment which is minimally unstable among efficient assignments when the stability comparison is based on comparing the sets of blocking pairs in the set-inclusion sense, we show that this is not necessarily true when the stability comparison is based on comparing the sets of blocking pairs in the cardinal sense, or when it is based on comparing sets of blocking students (in the set-inclusion or cardinal sense). Given the latter impossibilities, we characterize the priority profiles where there exists a Pareto improvement over the DA mechanism which is cardinally minimally stable among efficient assignments when counting blocking pairs or counting blocking students. The resulting domain restrictions suggest to take with caution school choice analysis which relies on a particular stability comparison method.
    Keywords: school choice, stability comparisons, minimal instability, deferred acceptance
    JEL: C70 D47 D61 D63
    Date: 2020–04
  4. By: Yu Zhou; Shigehiro Serizawa
    Abstract: We study an assignment market where multiple heterogenous objects are sold to unit demand agents who have general preferences accommodating imperfect transferability of utility and income effects. In such a model, there is a minimum price equilibrium. We establish the structural characterizations of minimum price equilibria and employ these results to design the "Serial Vickrey mechanism," that finds a minimum price equilibrium in a finite number of steps. The Serial Vickrey mechanism introduces the objects one by one, and requires agents to report finite-dimensional prices in finitely many times. Besides, the Serial Vickrey mechanism also has nice dynamic incentive properties.
    Date: 2020–07
  5. By: Moldovanu, Benny; Rosar, Frank
    Abstract: We analyze Brexit-like decisions in a polarized society. An electorate decides repeatedly be-tween a reversible alternative (REMAIN) and an irreversible alternative (LEAVE). We compare strengths and weaknesses of several mechanisms that can be used in reality. Voting by super-majority dominates voting by simple majority. Decisions by simple majority and by a too small super majority can perform very poorly under circumstances where it is socially optimal to never LEAVE, as they can exhibit equilibria where LEAVE is chosen very quickly. Mechanisms where LEAVE requires (super)majorities in two consecutive periods avoid this problem without relying on fine-tuning, but can lead to inefficient delays. If a final decision for either alternative requires winning by a certain margin, and if a new vote is triggered otherwise, both problems, choosing LEAVE too easily and inefficient delays, can often be avoided.
    Keywords: Dynamic voting; Irreversible option; Option value; Supermajority rules
    JEL: C72 D72 D82
    Date: 2019–11
  6. By: Eric Bahel (Virginia Polytechnic Institute and State University, Blacksburg, VA); Yves Sprumont (Université de Montréal)
    Abstract: We describe the class of strategy-proof mechanisms for choosing sets of objects when preferences are additive and monotonic.
    JEL: D71
    Date: 2020–05
  7. By: Degryse, Hans; Karagiannis, Nikolaos
    Abstract: While regulators often mandate price priority across markets, they do not impose secondary priority rules. Order preferencing by a broker to a specific market may then serve as tiebreaker. We compare order preferencing, modeled as price-broker-time priority (PBT), to price-time priority (PT). The secondary priority rule determines a limit order's execution probability, and hence investors' choice between limit and market orders. When the tick is tight relative to the dispersion in investors' valuations, trading rates are higher with PBT whereas investor welfare is higher with PT. The opposite holds for wide ticks. Our model has empirical and regulatory implications regarding market fragmentation.
    Keywords: market fragmentation; priority rules; queuing; welfare
    Date: 2019–11
  8. By: Ines Macho-Stadler (UAB - Universitat Autònoma de Barcelona [Barcelona]); David Pérez-Castrillo (UAB - Universitat Autònoma de Barcelona [Barcelona]); Nicolas Quérou (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We consider a market where \standard" risk-neutral agents coexist with "goalorented" agents who, in addition to the expected income, seek a high-enough monetary payo (the \trigger") to ful ll a goal. We analyze a two-sided one-to-one matching model where the matching between principals and agents and incentive contracts are endogenous. In any equilibrium contract, goal-oriented agents are matched with the principals with best projects and receive the trigger with positive probability. Moreover, goal and monetary incentives are complementary: goaloriented agents receive stronger monetary incentives. Finally, we discuss policy interventions in relevant environments..
    Keywords: Goal-oriented agents,incentives,matching market
    Date: 2020–07–17
  9. By: Mohsen Pourpouneh (Department of Food and Resource Economics, University of Copenhagen); Kurt Nielsen (Department of Food and Resource Economics, University of Copenhagen); Omri Ross (eToroX Labs, University of Copenhagen)
    Abstract: A new type of Automated Market Makers (AMMs) powered by Blockchain technology keep liquidity on-chain and offer transparent price mechanisms. This innovation is a significant step in the direction of building a more transparent and efficient financial market. This paper explores analytically market mechanisms and shows the conditions when those mechanisms are equivalent. Furthermore, we show that AMM mechanisms inherently create loses for market makers from inefficient prices (dictated by the AMM solutions), however, these mechanisms work well for assets with low volatility. We further analytically explore the losses and quantify them. The paper ends by discussing the design of efficient decentralized exchange compared to traditional Central Limited Order Books (CLOBs) and highlights the former’s potential regarding decentralized finance.
    Keywords: blockchain, decentralized exchanges, automated liquidity providers, auction, mechanism design
    JEL: D53 G12
    Date: 2020–07
  10. By: Sean Horan (Université de Montréal); Yves Sprumont (Université de Montréal)
    Abstract: We propose a class of decisive collective choice rules that rely on an exogenous linear ordering to partition the majority relation into two acyclic relations. The first relation is used to obtain a shortlist of the feasible alternatives while the second is used to make a final choice. In combination with faithfulness to the underlying majority relation, rules in this class are characterized by two desirable rationality properties: Sen’s expansion consistency and a version of Manzini and Mariotti’s weak WARP. The rules also satisfy natural adaptations of Arrow’s independence of irrelevant alternatives and May’s positive responsiveness.
    Keywords: Majority rule, Decisiveness, IIA, Monotonicity, Rational shortlist methods
    JEL: D71 D72
    Date: 2020–05
  11. By: Daske, Thomas
    Abstract: This study explores mechanism design for networks of interpersonal relationships. Agents' social (more or less altruistic or spiteful) preferences and private payoffs are all subject to asymmetric information. Remarkably, the asymmetry of information about agents' social preferences can be operationalized to satisfy agents' participation constraints. The main result is a constructive proof of the Coase theorem, in its typical mechanism-design interpretation, for networks of at least three agents: If endowments are sufficiently large, any such network can resolve any given allocation problem with an ex-post budget-balanced mechanism that is Bayesian incentive-compatible, interim individually rational, and ex-post Pareto-efficient. The endogenously derived solution concept is interpreted as gamification: Resolve the agents' allocation problem with an efficient social-preference robust mechanism; attract agents' participation by complementing this mechanism with a budget-balanced game that operates on their social preferences and provides them with a platform to live out their propensities to cooperate or compete.
    Keywords: mechanism design,social preferences,gamification,joyful games,Coase theorem
    JEL: C72 C78 D62 D82
    Date: 2020

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