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on Economic Design |
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Issue of 2020‒11‒16
five papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Gaurab Aryal; Eduardo Fajnzylber; Maria F. Gabrielli; Manuel Willington |
| Abstract: | We use data on annuities to study and evaluate an imperfectly competitive market where firms have private information about their (annuitization) costs. Our data is from Chile, where the market is structured as first-price-auction-followed-by-bargaining, and where each retiree chooses a firm and an annuity contract to maximize her expected present discounted utility. We find that retirees with low savings have the highest information processing cost, and they also care about firms' risk-ratings the most. Furthermore, while almost 50% of retirees reveal that they do not value leaving bequests, the rest have heterogeneous preference for bequest that, on average, increases with their savings. On the supply side, we find that firms' annuitization costs vary across retirees, and the average costs increase with retirees' savings. If these costs were commonly known then the pensions would increase for everyone, but the increment would be substantial only for the high savers. Likewise, if we simplify the current pricing mechanism by implementing English auctions and "shutting down" the risk-ratings, then the pensions would increase, but again, mostly for the high savers. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2011.02899&r=all |
| By: | Hitoshi Matsushima (University of Tokyo); Shunya Noda (University of British Columbia) |
| Abstract: | This study demonstrates a new approach to mechanism design from an epistemological perspective. We introduce an epistemological type space in which agents are either selfish or honest, and show that a slight possibility of honesty in higher-order beliefs motivates all selfish agents to behave sincerely. Specifically, we consider a situation in which a central planner attempts to elicit correct information from informed agents through mutual monitoring. We assume severe restrictions on incentive device availability: neither public monitoring nor allocation rules are available. Thus, the central planner uses only monetary payment rules. If “all agents are selfish†is common knowledge, eliciting correct information as unique equilibrium behavior is generally impossible. However, we show a very permissive result in our epistemological model by designing a quadratic scoring rule as the monetary payment rule: the central planner can elicit correct information from all agents as unique Bayes Nash equilibrium behavior if “all agents are selfish†is never common knowledge. This result holds even if honest agents are mostly motivated by monetary interest. |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:cfi:fseres:cf498&r=all |
| By: | Kunimoto, Takashi (School of Economics, Singapore Management University); Saran, Rene (University of Cincinnati); Serrano, Roberto (Brown University) |
| Abstract: | This paper investigates rationalizable implementation of social choice functions (SCFs) in incomplete information environments. We identify weak interim rationalizable monotonicity (weak IRM) as a novel condition and show that weak IRM is a necessary and almost sufficient condition for rationalizable implementation. We show by means of an example that interim rationalizable monotonicity (IRM), found in the literature, is strictly stronger than weak IRM as its name suggests, and that IRM is not necessary for rationalizable implementation, as had been previously claimed. The same example also demonstrates that Bayesian monotonicity, the key condition for full Bayesian implementation, is not necessary for rationalizable implementation. This implies that rationalizable implementation can be more permissive than Bayesian implementation: one can exploit the fact that there are no mixed Bayesian equilibria in the implementing mechanism. |
| Keywords: | Bayesian incentive compatibility; bayesian monotonicity; weak interim rationalizable monotonicity; interim rationalizable monotonicity; implementation; rationalizability |
| JEL: | C72 D78 D82 |
| Date: | 2020–10–17 |
| URL: | http://d.repec.org/n?u=RePEc:ris:smuesw:2020_021&r=all |
| By: | Chatterji, Shurojit (School of Economics, Singapore Management University); Zeng, Huaxia (Shanghai University of Finance and Economics) |
| Abstract: | We provide an exhaustive classification of all preference domains that allow the design of unanimous social choice functions (henceforth, rules) that are non-dictatorial and strategy-proof. This taxonomy is based on a richness assumption and employs a simple property of two-voter rules called invariance. The preference domains that form the classification are semi-single-peaked domains (introduced by Chatterji et al. (2013)) and semi-hybrid domains (introduced here) which are two appropriate weakenings of the single-peaked domains, and which, more importantly, are shown to allow strategy-proof rules to depend on non-peak information of voters’ preferences. As a refinement of the classification, single-peaked domains and hybrid domains emerge as the only preference domains that force strategy-proof rules to be determined completely by the peaks of voters’ preferences. We also provide characterization results for strategy-proof rules on these domains. |
| Keywords: | Strategy-proofness; invariance; path-connectedness; (semi)-singlepeaked preference; (semi)-hybrid preference |
| JEL: | D71 |
| Date: | 2020–10–27 |
| URL: | http://d.repec.org/n?u=RePEc:ris:smuesw:2020_022&r=all |
| By: | Volker Britz (CER–ETH – Center of Economic Research at ETH Zurich, Zurichbergstrasse 18, 8092 Zurich, Switzerland); Hans Gersbach (CER–ETH – Center of Economic Research at ETH Zurich, Zurichbergstrasse 18, 8092 Zurich, Switzerland) |
| Abstract: | We consider non–cooperative bargaining on the division of a surplus under simple majority rule. We use the “open rule” bargaining protocol as originally suggested by Baron and Ferejohn (1989): Proposals can be amended before they are voted on. It is widely known that there are significant gaps in our understanding of open rule bargaining. In order to address these gaps, we provide a fresh analysis of a particularly simple class of equilibria. Our results shed new light on the efficiency and fairness implications of using an open vs. closed rule in bargaining. In particular, our results on the open rule model suggest that equilibrium delays tend to be longer, and surplus allocations tend to be less egalitarian than originally predicted by Baron and Ferejohn. Understanding the efficiency and fairness properties of different bargaining protocols is crucial for institutional design. |
| Keywords: | Bargaining, Legislatures, Open Rules, Baron and Ferejohn, Stationary Equilibrium |
| JEL: | C72 C78 D72 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:20-346&r=all |