nep-des New Economics Papers
on Economic Design
Issue of 2020‒11‒09
eight papers chosen by
Alex Teytelboym
University of Oxford

  1. Strategy-proof mechanism design with non-quasilinear preferences: Ex-post revenue maximization for an arbitrary number of objects By Ryosuke Sakai; Shigehiro Serizawa
  2. Information Design in Optimal Auctions By Yi-Chun; Chen; Xiangqian; Yang
  3. Complementary bidding and the collusive arrangement: Evidence from an antitrust investigation By Robert Clark; Decio Coviello; Adriano De Leverano
  4. Decentralized Task Coordination By Jens Gudmundsson; Jens Leth Hougaard; Trine Tornøe Platz
  5. Need versus Merit: The Large Core of College Admissions Markets By P\'eter Bir\'o; Avinatan Hassidim; Assaf Romm; Ran I. Shorrer; S\'andor S\'ov\'ag\'o
  6. A Game-Theoretic Analysis of the Empirical Revenue Maximization Algorithm with Endogenous Sampling By Xiaotie Deng; Ron Lavi; Tao Lin; Qi Qi; Wenwei Wang; Xiang Yan
  7. Selling Consumer Data for Profit: Optimal Market-Segmentation Design and its Consequences By Kai Hao Yang
  8. A Model of Choice with Minimal Compromise By Mario Vazquez Corte; Levent \"Ulk\"u

  1. By: Ryosuke Sakai; Shigehiro Serizawa
    Abstract: We consider the multi-object allocation problem with monetary transfers where each agent obtains at most one object (unit-demand). We focus on allocation rules satisfying individual rationality, non-wastefulness, equal treatment of equals, and strategy-proofness. Extending the result of Kazumura et al. (2020B), we show that for an arbitrary number of agents and objects, the minimum price Walrasian is the unique ex-post revenue maximizing rule among the rules satisfying no subsidy in addition to the four properties, and that no subsidy in this result can be replaced by no bankruptcy on the positive income effect domain.
    Date: 2020–10
  2. By: Yi-Chun; Chen; Xiangqian; Yang
    Abstract: We study the information design problem in a single-unit auction setting. The information designer controls independent private signals according to which the buyers infer their binary private values. Assuming that the seller adopts the optimal auction due to Myerson (1981) in response, we characterize both the buyer-optimal information structure, which maximizes the buyers' surplus, and the sellerworst information structure, which minimizes the seller's revenue. We translate both information design problems into finite-dimensional, constrained optimization problems in which one can explicitly solve for the optimal information structures. In contrast to the case with one buyer (Roesler and Szentes, 2017 and Du, 2018), we show that with two or more buyers, the symmetric buyer-optimal information structure is different from the symmetric seller-worst information structure. The good is always sold under the seller-worst information structure but not under the buyer-optimal information structure. Nevertheless, as the number of buyers goes to infinity, both symmetric information structures converge to no disclosure. We also show that in an ex ante symmetric setting, an asymmetric information structure is never seller-worst but can generate a strictly higher surplus for the buyers than the symmetric buyer-optimal information structure.
    Date: 2020–10
  3. By: Robert Clark (Queen's University); Decio Coviello (HEC Montreal); Adriano De Leverano (ZEW - Leibniz Centre for European Economic Research in Mannheim)
    Abstract: A number of recent papers have proposed that a pattern of isolated winning bids may be associated with collusion. In contrast, others have suggested that bid clustering, especially of the two lowest bids, is indicative of collusion. In this paper, we present evidence from an actual procurement cartel uncovered during an anticollusion investigation that reconciles these two points of view and shows that both patterns arise naturally together as part of a cartel arrangement featuring complementary bidding. Using a difference-in-difference approach, we compare the extent of winning-bid isolation and clustering of bids in Montreal's asphalt industry before and after the investigation to patterns over the same time span in Quebec City, whose asphalt industry has not been the subject of collusion allegations. Our findings provide causal evidence that the collusive arrangement featured both clustering and isolation. We use information from testimony of alleged participants in the cartels to explain how these two seemingly contradictory patterns can be harmonized.
    Keywords: Auction, Bidding ring, Collusion, Complementary bidding, Clustered bids, Missing bids, Public procurement
    JEL: L22 L74 D44 H57
    Date: 2020–07
  4. By: Jens Gudmundsson (Department of Food and Resource Economics, University of Copenhagen); Jens Leth Hougaard (NYU-Shanghai, China; Department of Food and Resource Economics, University of Copenhagen); Trine Tornøe Platz (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: We study decentralized task coordination. Tasks are of varying complexity and agents asymmetric: agents capable of completing high-level tasks may also take on tasks originally contracted by lower-level agents, facilitating system-wide cost reductions. We suggest a family of decentralized two-stage mechanisms in which agents first announce preferred individual workloads and then bargain over the induced joint cost savings. The second-stage negotiations depend on the first-stage announcements as specified through the mechanism's recognition function. We characterize mechanisms that incentivize cost-effective task allocation and further single out a particular mechanism, which additionally ensures a fair distribution of the system-wide cost savings.
    Keywords: Decentralized mechanisms, Implementation, Bargaining, Consistency, Blockchain
    JEL: C72 C78 D47 D63 D78
    Date: 2020–10
  5. By: P\'eter Bir\'o; Avinatan Hassidim; Assaf Romm; Ran I. Shorrer; S\'andor S\'ov\'ag\'o
    Abstract: This paper studies the set of stable allocations in college admissions markets where students can attend the same college under different financial terms. The stable deferred acceptance mechanism implicitly allocates funding based on merit. In Hungary, where the centralized mechanism is based on deferred acceptance, an alternate stable algorithm would change the assignment of 9.3 percent of the applicants, and increase the number of assigned applicants by 2 percent. Low socioeconomic status applicants and colleges in the periphery benefit disproportionately from moving to this non-merit-based algorithm. These findings stand in sharp contrast to findings from the matching (without contracts) literature.
    Date: 2020–10
  6. By: Xiaotie Deng; Ron Lavi; Tao Lin; Qi Qi; Wenwei Wang; Xiang Yan
    Abstract: The Empirical Revenue Maximization (ERM) is one of the most important price learning algorithms in auction design: as the literature shows it can learn approximately optimal reserve prices for revenue-maximizing auctioneers in both repeated auctions and uniform-price auctions. However, in these applications the agents who provide inputs to ERM have incentives to manipulate the inputs to lower the outputted price. We generalize the definition of an incentive-awareness measure proposed by Lavi et al (2019), to quantify the reduction of ERM's outputted price due to a change of $m\ge 1$ out of $N$ input samples, and provide specific convergence rates of this measure to zero as $N$ goes to infinity for different types of input distributions. By adopting this measure, we construct an efficient, approximately incentive-compatible, and revenue-optimal learning algorithm using ERM in repeated auctions against non-myopic bidders, and show approximate group incentive-compatibility in uniform-price auctions.
    Date: 2020–10
  7. By: Kai Hao Yang (Cowles Foundation, Yale University)
    Abstract: A data broker sells market segmentations created by consumer data to a producer with private production cost who sells a product to a unit mass of consumers with heterogeneous values. In this setting, I completely characterize the revenue-maximizing mechanisms for the data broker. In particular, every optimal mechanism induces quasi-perfect price discrimination. That is, the data broker sells the producer a market segmentation described by a cost-dependent cutoff, such that all the consumers with values above the cutoff end up buying and paying their values while the rest of consumers do not buy. The characterization of optimal mechanisms leads to additional economically relevant implications. I show that the induced market outcomes remain unchanged even if the data broker becomes more active in the product market by gaining the ability to contract on prices; or by becoming an exclusive retailer, who purchases both the product and the exclusive right to sell the product from the producer, and then sells to the consumers directly. Moreover, vertical integration between the data broker and the producer increases total surplus while leaving the consumer surplus unchanged, since consumer surplus is zero under any optimal mechanism for the data broker.
    Keywords: Price discrimination, Market segmentation, Mechanism design, Virtual cost
    JEL: D42 D82 D61 D83 L12
    Date: 2020–10
  8. By: Mario Vazquez Corte; Levent \"Ulk\"u
    Abstract: I formulate and characterize the following two-stage choice behavior. The decision maker is endowed with two preferences. She shortlists all maximal alternatives according to the first preference. If the first preference is decisive, in the sense that it shortlists a unique alternative, then that alternative is the choice. If multiple alternatives are shortlisted, then, in a second stage, the second preference vetoes its minimal alternative in the shortlist, and the remaining members of the shortlist form the choice set. Only the final choice set is observable. I assume that the first preference is a weak order and the second is a linear order. Hence the shortlist is fully rationalizable but one of its members can drop out in the second stage, leading to bounded rational behavior. Given the asymmetric roles played by the underlying binary relations, the consequent behavior exhibits a minimal compromise between two preferences. To our knowledge it is the first Choice function that satisfies Sen's $\beta$ axiom of choice,but not $\alpha$.
    Date: 2020–10

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