nep-des New Economics Papers
on Economic Design
Issue of 2020‒12‒07
six papers chosen by
Alex Teytelboym
University of Oxford

  1. Screening for breakthroughs By Gregorio Curello; Ludvig Sinander
  2. Selling Two Identical Objects By Sushil Bikhchandani; Debasis Mishra
  3. Selling two complementary goods By Komal Malik; Kolagani Paramahamsa
  4. Ordinal Bayesian incentive compatibility in random assignment model By Sulagna Dasgupta; Debasis Mishra
  5. Stable cores in information graph games By Marina Núñez; Juan Vidal-Puga
  6. Prize sharing rules in collective contests: When does group size matter? By Dhritiman Gupta

  1. By: Gregorio Curello; Ludvig Sinander
    Abstract: An agent privately observes a technological breakthrough that expands utility possibilities, and must be incentivised to disclose it. The principal controls the agent's utility over time. Optimal mechanisms keep the agent only just willing to disclose promptly. In an important case, a deadline mechanism is optimal: absent disclosure, the agent enjoys an efficient utility before a deadline, and an inefficiently low utility afterwards. In general, optimal mechanisms feature a (possibly gradual) transition from the former to the latter. Even if monetary transfers are permitted, they may not be used. We apply our results to the design of unemployment insurance schemes.
    Date: 2020–11
  2. By: Sushil Bikhchandani (UCLA); Debasis Mishra (Indian Statistical Institute, Delhi)
    Abstract: It is well-known that optimal (i.e., revenue-maximizing) selling mechanisms in multidimensional type spaces may involve randomization. We study mechanisms for selling two identical, indivisible objects to a single buyer. We analyze two settings: (i) decreasing marginal values (DMV) and (ii) increasing marginal values (IMV). Thus, the two marginal values of the buyer are not independent. We obtain sucient conditions on the distribution of buyer values for the existence of an optimal mechanism that is deterministic. In the DMV model, we show that under a well-known condition, it is optimal to sell the first unit deterministically. Under the same sucient condition, a bundling mechanism (which is deterministic) is optimal in the IMV model. Under a stronger sufficient condition, a deterministic mechanism is optimal in the DMV model. Our results apply to heterogenous objects when there is a specified sequence in which the two objects must be sold.
    Date: 2020–09
  3. By: Komal Malik; Kolagani Paramahamsa
    Abstract: A seller is selling a pair of complementary goods to an agent. The agent consumes the goods only in a certain ratio and freely disposes of excess in either of the goods. The value of the bundle and the ratio are private information of the agent. In this two-dimensional type space model, we characterize the incentive constraints and show that the optimal (expected revenue-maximizing) mechanism is a ratio-dependent posted price mechanism for a class of distributions; that is, it has a different posted price for each ratio report. We identify additional sufficient conditions on the joint distribution for a posted price to be an optimal mechanism. We also show that the optimal mechanism is a posted price mechanism when the value and the ratio types are independently distributed.
    Date: 2020–11
  4. By: Sulagna Dasgupta (University of Chicago); Debasis Mishra (Indian Statistical Institute, Delhi)
    Abstract: We explore the consequences of weakening the notion of incentive compatibility from strategy-proofness to ordinal Bayesian incentive compatibility (OBIC) in the random assignment model. If the common prior of the agents is a uniform prior, then a large class of random mechanisms are OBIC with respect to this prior – this includes the probabilistic serial mechanism. We then introduce a robust version of OBIC: a mechanism is locally robust OBIC if it is OBIC with respect all independent priors in some neighborhood of a given independent prior. We show that every locally robust OBIC mechanism satisfying a mild property called elementary monotonicity is strategy-proof. This leads to a strengthening of the impossibility result in Bogomolnaia and Moulin (2001): if there are at least four agents, there is no locally robust OBIC and ordinally ecient mechanism satisfying equal treatment of equals.
    Keywords: ordinal Bayesian incentive compatibility, random assignment, probabilistic serial mechanism
    JEL: D47 D82
    Date: 2020–09
  5. By: Marina Núñez (Universitat de Barcelona); Juan Vidal-Puga (Universidade de Vigo)
    Abstract: In an information graph situation, some agents that are connected by an undirected graph can share with no cost some information or technology that can also be obtained from a source. If an agent is not connected to an informed player, this agent pays a unitary cost to obtain this technology. A coalitional cost game can be defined from this situation, and the core of this game is known to be non- empty. We prove that the core of an information graph game is a von Neumann-Morgenstern stable set if and only if the graph is cycle- complete, or equivalently if the information graph game is concave. When the graph is not cycle-complete, whether there always exists a stable set is an open question. In this regard, we show that if the information graph consists of a ring that contains the source, then a stable set always exists and it is the core of a related information graph situation where one edge has been deleted.
    Keywords: Coalitional game, information graph, core, stable set.
    JEL: C71
    Date: 2020
  6. By: Dhritiman Gupta (Indian Statistical Institute, Delhi)
    Abstract: In this paper we deal with situations of collective contests between two groups over a private prize. A well known way to divide the prize within the winning group is the prize sharing rule introduced by Nitzan (1991). Since its introduction it has become a standard in the collective contests literature. We generalize this rule by introducing a restriction we call norms of competitiveness of a group. We fully characterize how group sizes interact with such norms. What we show is that the smaller group is generally aggressive, but the larger group needs to have really egalitarian norms to behave aggressively in the contest. We also take up the question of how group welfare relates to group sizes under the stated norms. We provide a complete set of conditions under which the larger group fares worse in the contest, a phenomenon called Group Size Paradox (GSP) in the literature.
    Keywords: Rent Seeking, Collective Action, Prize Sharing Rules
    JEL: D23 D71 D72 H41 C72
    Date: 2020–07

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