nep-des New Economics Papers
on Economic Design
Issue of 2021‒01‒04
ten papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Uninformed Bidding in Sequential Auctions By Emmanuel LORENZON
  2. A Field Evaluation of a Matching Mechanism: University Applicant Behaviour in Australia By Guillen, Pablo; Kesten, Onur; Kiefer, Alexander; Melatos, Mark
  3. Assignment Maximization By Mustafa O\u{g}uz Afacan; In\'acio B\'o; Bertan Turhan
  4. Farsighted Objections and Maximality in One-to-one Matching Problems By Kimya, Mert
  5. Government financing of R&D: A mechanism design approach By Saul Lach; Zvika Neeman; Mark Schankerman
  6. On Strategy-proofness and the Salience of Single-peakedness in a Private Goods Economy By Shurojit Chatterji; Jordi Massó; Shigehiro Serizawa
  7. Strategy-Proof Club Formation with Indivisible Club Facilities By Bhaskar Dutta; Anirban Kar; John Weymark
  8. Implementation, Honesty, and Common Knowledge By Hitoshi Matsushima
  9. Designing Preference Voting By Philipp Harfst; Damien Bol; Jean-François Laslier
  10. The Multiple-Volunteers Principle By Susanne Goldlücke; Thomas Tröger

  1. By: Emmanuel LORENZON
    Abstract: We consider a private value auction with one-sided incomplete information in which two objects are sold in a sequence of two second-price auctions. Buyers have multi-unit demands and both are asymmetrically informed at the ex-ante stage of the game. One buyer perfectly knows his type and the other is uninformed about his own type. We con-sider interim information acquisition for the uninformed buyer and derive an asymmetric equilibrium which is shown to produce a declining price sequence across both sales. The supermartingale property of the price sequence stems from the uninformed buyer’s incen-tives to gather private information which leads to an aggressive bidding at the first-stage auction.
    Keywords: Sequential auctions; Uninformed bidding; Multi-unit demand; Declining price anomaly
    JEL: D44 D82 L86 M37
    Date: 2020
  2. By: Guillen, Pablo; Kesten, Onur; Kiefer, Alexander; Melatos, Mark
    Abstract: The majority of undergraduate university applications in the state of New South Wales – Australia’s largest state – are processed by a clearinghouse, the Universities Admissions Centre (UAC). Applicants submit an ordered list of degree preferences to UAC which applies a matching algorithm to allocate university places to eligible applicants. The algorithm incorporates the possibility of a type of “early action” through which applicants receive guaranteed enrolments. Applicants receive advice on how to construct their degree preference list from multiple sources (including individual universities). This advice is often confusing, inconsistent with official UAC advice or simply misleading. To evaluate the policy implications of this design choice, we run a large sample (832 observations) experiment with experienced participants in a choice environment that mimics the UAC application process and in which truth telling is a dominant strategy. We vary the advice received across treatments: no advice, UAC advice only, (inaccurate) university advice only, and both UAC and university advice together. Overall, 75.5% of participants fail to use the dominant strategy. High rates of applicant manipulation persist even when applicants are provided with accurate UAC advice. We find that students who attend non-selective government schools are more prone to use strictly dominated strategies than those who attend academically selective government schools and private schools.
    Date: 2020–12
  3. By: Mustafa O\u{g}uz Afacan; In\'acio B\'o; Bertan Turhan
    Abstract: We evaluate the goal of maximizing the number of individuals matched to acceptable outcomes. We show that it implies incentive, fairness, and implementation impossibilities. Despite that, we present two classes of mechanisms that maximize assignments. The first are Pareto efficient, and undominated -- in terms of number of assignments -- in equilibrium. The second are fair for unassigned students and assign weakly more students than stable mechanisms in equilibrium.
    Date: 2020–12
  4. By: Kimya, Mert
    Abstract: We characterize the set of stable matchings when individuals are farsighted and when they choose their objections optimally along a farsighted objection path. We use a solution concept called maximal farsighted set (MFS), which is an adaptation of the concepts developed in Dutta and Vohra (2017) and Dutta and Vartiainen (2020) to one-to-one matching problems. MFS always exists, but it need not be unique. There is a unique largest MFS that contains all other, which is equal to the largest consistent set of Chwe (1994). This implies that the largest consistent set embodies the idea of maximality in one-to-one matching problems.
    Date: 2020–09
  5. By: Saul Lach; Zvika Neeman; Mark Schankerman
    Abstract: We study how to design an optimal government loan program for risky R&D projects with positive externalities. With adverse selection, the optimal government contract involves a high interest rate but nearly zero co-financing by the entrepreneur. This contrasts sharply with observed loan schemes. With adverse selection and moral hazard (two effort levels), the optimal policy consists of a menu of at most two contracts, one with high interest and zero self-financing, and a second with a lower interest plus co-financing. Calibrated simulations assess welfare gains from the optimal policy, observed loan programs, and a direct subsidy to private venture capital firms. The gains vary with the size of the externalities, cost of public funds, and effectiveness of the private VC industry.
    Keywords: mechanism design, innovation, R&D, entrepreneurship, additionality, government finance, venture capital
    JEL: D61 D82 O32 O38
    Date: 2020–06
  6. By: Shurojit Chatterji; Jordi Massó; Shigehiro Serizawa
    Abstract: We consider strategy-proof rules operating on a rich domain of preference profiles in a set up where multiple private goods have to be assigned to a set of agents with entitlements where preferences display satiation. We show that if the rule is in addition "desirable", in that it is tops-only, continuous, same-sided and individually rational with respect to the entitlements, then the preferences in the domain have to satisfy a variant of single-peakedness (referred to as semilattice single-peakedness). We also provide a converse of this main finding. It turns out that this domain coincides with the one already identified in a general set up with a public good. Finally, we relate semilattice single-peaked domains to well-known restricted domains under which strategy-proof and desirable rules do exist.
    Date: 2020–12
  7. By: Bhaskar Dutta (Ashoka University); Anirban Kar (Delhi School of Economics); John Weymark (Vanderbilt University)
    Abstract: We investigate the strategy-proof provision and financing of indivisible club good facilities when individuals are subject to congestion costs that are nondecreasing in the number of other club members and in a private type parameter. An allocation rule specifies how the individuals are to be partitioned into clubs and how the costs of the facilities are to be shared by club members as a function of the types. We show that no allocation rule is strategy-proof and cost efficient (i.e., it always minimizes the aggregate of the financial and congestion costs of the club facilities) when congestion costs are strictly increasing in the type parameter, but that these properties are compatible if congestion costs are dichotomous and costs are equally shared within a club. We also provide examples of strategy-proof allocation rules with equal cost sharing that are (i) Pareto optimal and (ii) Pareto optimal, nondictatorial, and individually rational when the congestion cost is linear in the type parameter.
    Keywords: club goods, strategy-proofness
    Date: 2020–12
  8. By: Hitoshi Matsushima (University of Tokyo)
    Abstract: We investigate the unique implementation problem of social choice functions (SCFs) from ethical and epistemological concerns. According to Matsushima and Noda (2020), we consider the possibility that in higher-order beliefs there exists an agent who is honest, that is, motivated by intrinsic preference for honesty as well as material interest. We assume only weak honesty in that an honest agent is mostly motivated by material interests and even tells a white lie. We show a very permissive result that any social choice function is uniquely implementable in Bayes Nash equilibrium if “all agents are selfish†never happens to be common knowledge. Hence, any SCF is uniquely implementable even if all agents are selfish and “all agents are selfish†is mutual knowledge. Importantly, any ethical SCF is uniquely implementable whenever “all agents are selfish†never happens to be common knowledge while it is never uniquely implementable otherwise.
    Date: 2020–12
  9. By: Philipp Harfst (TUD - Technische Universität Dresden); Damien Bol (King‘s College London); Jean-François Laslier (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: Electoral systems in which voters can cast preference votes for individual candidates within a party list are increasingly popular. To the best of our knowledge, there is no research on whether and how the scale used to evaluate candidates can affect electoral behavior and results. In this paper, we analyze data from an original voting experiment leveraging real-life political preferences and embedded in a nationally representative online survey in Austria. We show that the scale used by voters to evaluate candidates makes differences. For example, the possibility to give up to two points advantages male candidates because male voters are more likely to give 'zero points' to female candidates. Yet this pattern does not exist in the system in which voters can give positive and negative points because male voters seem reluctant to actively withdraw points from female candidates. We thus encourage constitution makers to think carefully about the design of preference voting.
    Keywords: Electoral system,Proportional representation,Preference voting,Approval voting,experiment,Austria
    Date: 2020
  10. By: Susanne Goldlücke; Thomas Tröger
    Abstract: We consider mechanisms for assigning an unpleasant task among a group of agents with heterogenous abilities. We emphasize threshold rules: every agent decides whether or not to ``volunteer''; if the number of volunteers exceeds a threshold number, the task is assigned to a random volunteer; if the number is below the threshold, the task is assigned to a random non-volunteer. We show that any non-extreme threshold rule allows for a symmetric equilibrium in which every ability type is strictly better off than in a random assignment. This holds for arbitrarily high costs of performing the task. Within the class of binary-action mechanisms, some threshold rule is utilitarian optimal. The first-best can be approximated arbitrarily closely with a threshold rule as the group size tends to infinity; that is, there exist threshold numbers such that with probability arbitrarily close to 1 the task is performed by an agent with an ability arbitrarily close to the highest possible ability. The optimal threshold number goes to infinity as the group size tends to infinity.
    Date: 2020–12

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