nep-des New Economics Papers
on Economic Design
Issue of 2021‒01‒25
fourteen papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Booster draft mechanism for multi-object assignment By Caspari, Gian
  2. A fair procedure in a marriage market By Romero-Medina, Antonio; Kuvalekar, Aditya Vijay
  3. On the equivalence of strategy-proofness and upper contour strategy-proofness for randomized social choice functions By Roy, Souvik; Sadhukhan, Soumyarup
  4. The Law of Large Numbers for Large Stable Matchings By Jacob Schwartz; Kyungchul Song
  5. Breaking Ties: Regression Discontinuity Design Meets Market Design By Atila Abdulkadiroglu; Joshua D. Angrist; Yusuke Narita; Parag A. Pathak
  6. Common values and unobserved heterogeneity in farmland auctions in Germany By Seifert, Stefan; Hüttel, Silke
  7. Strategic bidding via the interplay of minimum income condition orders in day-ahead power exchanges By D\'avid Csercsik
  8. Split-award auctions and supply disruptions By Fugger, Nicolas; Laitenberger, Ulrich
  9. On the structure of division rules By Roy, Souvik; Sadhukhan, Soumyarup
  10. On the Computational Properties of Obviously Strategy-Proof Mechanisms By Louis Golowich; Shengwu Li
  11. Persuading communicating voters By Kerman, Toygar; Tenev, Anastas P.
  12. Optimal Delegation and Information Transmission Under Limited Awareness By Sarah Auster; Nicola Pavoni
  13. Organized Information Transmission By Mathevet, Laurent; Taneva, Ina
  14. Mechanism Design for Cumulative Prospect Theoretic Agents: A General Framework and the Revelation Principle By Soham R. Phade; Venkat Anantharam

  1. By: Caspari, Gian
    Abstract: We describe a new mechanism - what we call a booster draft - for allocating multiple, indivisible objects among a group of individuals. The mechanism's appeal lies in its strategy-proofness and simplicity: Individuals take turns drawing objects from different sets - called boosters - and simply need to identify their favorite object when it's their turn to choose. Following a market design approach, we examine how to tailor the booster draft mechanism to specific multi-object assignment problems. As an illustrative example, we consider the assignment of teaching positions to graduate students. We show that, through the right design of the boosters, not only is the mechanism strategy-proof, but the resulting allocations are fair and efficient. In fact, in the described domain, under some additional mild axioms, any strategy-proof mechanism is some variation of a booster draft. Finally, using data on graduate students preferences, we demonstrate that the booster draft is useful and easy to implement in practice.
    Keywords: Matching,Envy-free,Booster Draft,Multi-Object Assignment
    JEL: D47
    Date: 2020
  2. By: Romero-Medina, Antonio; Kuvalekar, Aditya Vijay
    Abstract: We propose a new algorithm in the two-sided marriage market wherein both sides of the market propose in each round. The algorithm always yields astable matching. Moreover, the outcome is often a non-extremal matching, and in fact, is a Rawlsian stable matching if the matching market is "balanced." Lastly, the algorithm can be computed in polynomial time and, hence, from a practical standpoint, can be used in markets in which fairness considerations are important.
    Keywords: Deferred Acceptance Algorithm; Fair Procedure; Two-Sided Matching
    JEL: D41 C78 C72
    Date: 2021–01–13
  3. By: Roy, Souvik; Sadhukhan, Soumyarup
    Abstract: We consider a weaker notion of strategy-proofness called upper contour strategy-proofness (UCSP) and investigate its relation with strategy-proofness (SP) for random social choice functions (RSCFs). Apart from providing a simpler way to check whether a given RSCF is SP or not, UCSP is useful in modeling the incentive structures for certain behavioral agents. We show that SP is equivalent to UCSP and elementary monotonicity on any domain satisfying the upper contour no restoration (UCNR) property. To analyze UCSP on multi-dimensional domains, we consider some block structure over the preferences. We show that SP is equivalent to UCSP and block monotonicity on domains satisfying the block restricted upper contour preservation property. Next, we analyze the relation between SP and UCSP under unanimity and show that SP becomes equivalent to UCSP and multi-swap monotonicity on any domain satisfying the multi-swap UCNR property. Finally, we show that if there are two agents, then under unanimity, UCSP alone becomes equivalent to SP on any domain satisfying the swap UCNR property. We provide applications of our results on the unrestricted, single-peaked, single-crossing, single-dipped, hybrid, and multi-dimensional domains such as lexicographically separable domains with one component ordering and domains under committee formation.
    Keywords: strategy-proofness; upper contour strategy-proofness; unanimity; elementary monotonicity; block monotonicity; multi-swap monotonicity;
    JEL: D71 D81
    Date: 2020–08–21
  4. By: Jacob Schwartz; Kyungchul Song
    Abstract: A stable matching between two sets of agents (such as students and colleges) has received a great deal of attention in the literature. For an empirical study of matching markets, the main statistics of interest are the matching frequencies, which show the fraction of students of a given type who match with colleges of a given type. We study the concentration-of-measure phenomenon for matching frequencies when the observed matching is generated from a Deferred Acceptance algorithm. We introduce a notion of partial homogeneity of preferences to express correlated priorities of colleges over students, and demonstrate the relation between partial homogeneity and concentration of measure. Our concentration inequality immediately yields the rate of convergence for the law of large numbers for matching frequencies.
    Date: 2021–01
  5. By: Atila Abdulkadiroglu (Duke University); Joshua D. Angrist (MIT); Yusuke Narita (Cowles Foundation, Yale University); Parag A. Pathak (MIT)
    Abstract: Many schools in large urban districts have more applicants than seats. Centralized school assignment algorithms ration seats at over-subscribed schools using randomly assigned lottery numbers, non-lottery tie-breakers like test scores, or both. The New York City public high school match illustrates the latter, using test scores and other criteria to rank applicants at \screened” schools, combined with lottery tie-breaking at unscreened \lottery” schools. We show how to identify causal e?ects of school attendance in such settings. Our approach generalizes regression discontinuity methods to allow for multiple treatments and multiple running variables, some of which are randomly assigned. The key to this generalization is a local propensity score that quanti?es the school assignment probabilities induced by lottery and non-lottery tie-breakers. The local propensity score is applied in an empirical assessment of the predictive value of New York City’s school report cards. Schools that receive a high grade indeed improve SAT math scores and increase graduation rates, though by much less than OLS estimates suggest. Selection bias in OLS estimates is egregious for screened schools.
    Keywords: Causal Inference, Natural Experiment, Local Propensity Score, Instrumental Variables, Unified Enrollment, School Report Card, School Value Added
    Date: 2019–03
  6. By: Seifert, Stefan; Hüttel, Silke
    Abstract: In this paper, we test for the existence of a common component in agricultural land auctions in eastern Germany during the price boom 2007-2018 and discuss respective policy implications. Using a large, detailed dataset of auctions, we can rely on professional appraisals of the auctioned good that are privy to the seller to control for unobserved heterogeneity. We derive a new approach to disentangle valuations from observed and unobserved heterogeneity across auctions. For validation purposes we provide several model specifications; based on all models, we strongly reject purely private valuations. Based on the rich identification strategy, we conclude the existence of a common component in these auctions to be very likely. Our results first underline the importance of an adequate model specification to analyze farmland auctions. Second, from a policy perspective, the implied potential for a winner's curse can be seen as a warning sign for the sector.
    Keywords: Farmland auctions,common values,unobserved heterogeneity
    JEL: C57 D44 Q12
    Date: 2020
  7. By: D\'avid Csercsik
    Abstract: In this paper we study the so-called minimum income condition order, which is used in some day-ahead electricity power exchanges to represent the production-related costs of generating units. This order belongs to the family of complex orders, which imply non-convexities in the market clearing problem. We demonstrate via simple numerical examples that if more of such bids are present in the market, their interplay may open the possibility of strategic bidding. More precisely, we show that by the manipulation of bid parameters, a strategic player may increase its own profit and potentially induce the deactivation of an other minimum income condition order, which would be accepted under truthful bidding. Furthermore, we show that if we modify the objective function used in the market clearing according to principles suggested in the literature, it is possible to prevent the possibility of such strategic bidding, but the modification raises other issues.
    Date: 2020–12
  8. By: Fugger, Nicolas; Laitenberger, Ulrich
    Abstract: Problem Definition: We consider a buyer that needs to source a fixed quantity. She faces several potential suppliers that might fail to deliver. The buyer conducts a procurement auction to determine contract suppliers and can choose between single-sourcing and multi-sourcing. If contract suppliers fail to deliver, the buyer tries to source from non-contract suppliers but has little bargaining power due to time pressure. Academic/Practical Relevance: The mitigation of supply risks plays an important role in procurement practice but attracted little attention in the academic analysis of procurement auctions. Academic research on multi-sourcing procurement auction typically analyzes these auctions as stand-alone events. In contrast, we investigate the influence of the auction design on the post-auction market structure and identify an effect favoring multi-sourcing. The insights provide procurement managers guidance for their sourcing decisions. Methodology: We apply game-theoretical methods to analyze a stylized model in which a cost-minimizing buyer needs to source from profit-maximizing suppliers who might fail to deliver. The buyer conducts a procurement auction to determine contract suppliers and can choose between single-sourcing and multi-sourcing. If contract suppliers fail to deliver, the buyer tries to source from a non-contract supplier. We assume that in this situation, the non-contract supplier has almost all the bargaining power. Results: First, we show that in such a setting multi-sourcing does not only reduce the supply risk but might also yield lower prices than single-sourcing. The sourcing decision affects the post-auction market structure such that being a non-contract supplier becomes less attractive in case of multi-sourcing. Second, if suppliers are heterogeneous regarding their disruption probabilities, less reliable suppliers will bid more aggressively than their more reliable competitors causing an adverse selection problem. Furthermore, we show that attracting an additional supplier can be risky as it can increase the auction price and the buyer's total expenses. Managerial Implications: Our analysis reveals a pro-competitive effect of multi-sourcing. This effect is especially important if the buyer's value for the item is substantially larger than suppliers' production costs and for intermediate disruption probabilities.
    Keywords: Adverse selection,auctions,multi-sourcing,supply disruptions,procurement
    JEL: D44 D47 H57
    Date: 2020
  9. By: Roy, Souvik; Sadhukhan, Soumyarup
    Abstract: We consider the problem of dividing one unit of an infinitely divisible object among a finite number of agents. We provide a characterization of all single-peaked domains on which the uniform rule is the unique division rule satisfying efficiency, strategy-proofness, and equal treatment of equals (ETE). We also provide a class of division rules satisfying these properties on the remaining single-peaked domains. Next, we consider non single-peaked domains and provide a characterization of all such domains on which the uniform rule satisfies efficiency, strategy-proofness, and ETE. We also show that under some mild richness conditions the uniform rule is the unique rule satisfying the mentioned properties on these domains. Finally, we provide a class of division rules satisfying efficiency, strategy-proofness, and ETE on the remaining non single-peaked domains. We conclude the paper by providing a wide range of applications to justify the usefulness of our results.
    Keywords: division problems; efficiency; strategy-proofness; equal treatment of equals; single-peaked preferences; non single-peaked preferences; the uniform rule
    JEL: D71 D82
    Date: 2020–06–08
  10. By: Louis Golowich; Shengwu Li
    Abstract: We present a polynomial-time algorithm that determines, given some choice rule, whether there exists an obviously strategy-proof mechanism for that choice rule.
    Date: 2021–01
  11. By: Kerman, Toygar (General Economics 0 (Onderwijs), RS: GSBE other - not theme-related research); Tenev, Anastas P. (General Economics 0 (Onderwijs), RS: GSBE Theme Conflict & Cooperation)
    Abstract: This paper studies a multiple-receiver Bayesian persuasion model, where a sender communicates with receivers who have homogeneous beliefs and aligned preferences. The sender wants to implement a proposal and commits to a communication strategy which sends private (possibly) correlated messages to the receivers, who are in an exogenous and commonly known network. Receivers can observe their neighbors’ private messages and after updating their beliefs, vote sincerely on the proposal. We examine how networks of shared information affect the sender’s gain from persuasion and find that in many cases it is not restricted by the additional information provided by the receivers’ neighborhoods. Perhaps surprisingly, the sender’s gain from persuasion is not monotonically decreasing with the density of the network.
    JEL: C72 D72 D82 D85
    Date: 2021–01–01
  12. By: Sarah Auster; Nicola Pavoni
    Abstract: We study the delegation problem between a principal and an agent, who not only has better information about the performance of the available actions but also has superior awareness of the set of actions that are actually feasible. The agent decides which of the available actions to reveal and which ones to hide. We provide conditions under which the agent finds it optimal to leave the principal unaware of relevant options. By doing so, the agent increases the principal's cost of distorting the agent's choices and thereby increases the principal's willingness to grant him higher information rents. We also consider communication between the principal and the agent after the contract is signed and the agent receives information. We show that limited awareness of actions improves communication in such signalling games: the principal makes a coarser inference from the recommendations of the privately informed agent and accepts a larger number of his proposals.
    Keywords: Unawareness, optimal delegation, strategic disclosure
    JEL: D82 D83 D86
    Date: 2021–01
  13. By: Mathevet, Laurent; Taneva, Ina
    Abstract: In reality, the organizational structure of information — describing how information is transmitted to its recipients — is as important as its content. In this paper, we introduce families of (indirect) information structures, namely meeting schemes and delegated hierarchies, that capture the horizontal and vertical dimensions of real-world transmission. We characterize the outcomes that they implement in general (finite) games and show that they are optimal in binary-action environments with strategic complementarities. Our application to classical regime-change games illustrates the variety of optimal meeting schemes and delegated hierarchies as a function of the objective
    Keywords: Incomplete information, information hierarchy, delegated transmission, meeting scheme, Bayes correlated equilibrium, information design.
    JEL: C72 D82 D83
    Date: 2020–07–20
  14. By: Soham R. Phade; Venkat Anantharam
    Abstract: This paper initiates a discussion of mechanism design when the participating agents exhibit preferences that deviate from expected utility theory (EUT). In particular, we consider mechanism design for systems where the agents are modeled as having cumulative prospect theory (CPT) preferences, which is a generalization of EUT preferences. We point out some of the key modifications needed in the theory of mechanism design that arise from agents having CPT preferences and some of the shortcomings of the classical mechanism design framework. In particular, we show that the revelation principle, which has traditionally played a fundamental role in mechanism design, does not continue to hold under CPT. We develop an appropriate framework that we call mediated mechanism design which allows us to recover the revelation principle for CPT agents. We conclude with some interesting directions for future work.
    Date: 2021–01

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