nep-des New Economics Papers
on Economic Design
Issue of 2021‒02‒01
nine papers chosen by
Alex Teytelboym
University of Oxford

  1. Multi-object Auction Design Beyond Quasi-linearity: Leading Examples By Yu Zhou; Shigehiro Serizawa
  2. Breaking Ties: Regression Discontinuity Design Meets Market Design By Atila Abdulkadiroglu; Joshua D. Angrist; Yusuke Narita; Parag Pathak
  3. Fair and Efficient Allocations under Lexicographic Preferences By Hadi Hosseini; Sujoy Sikdar; Rohit Vaish; Lirong Xia
  4. The Probabilistic Serial and Random Priority Mechanisms with Minimum Quotas By Marek Bojko
  5. Approval Voting & Majority Judgment in Weighted Representative Democracy By Arnold Cédrick SOH VOUTSA
  6. Information Design by an Informed Designer By Frédéric Koessler; Vasiliki Skreta
  7. Optimal Delegation and Information Transmission under Limited Awareness By Sarah Auster; Nicola Pavoni
  8. A Model of Market Making and Price Impact By Angad Singh
  9. Designing Interrogations By Alessandro Ispano; Peter Vida

  1. By: Yu Zhou; Shigehiro Serizawa
    Abstract: In multi-object auction models with unitary demand agents, if agents' utility functions satisfy quasi-linearity, three auction formats, sealed-bid auction, exact ascending auction, and approximate ascending auction, are known to identify the minimum price equilibrium (MPE), and exhibit elegant efficiency and incentive-compatibility. These auctions are conjured to preserve their properties beyond quasi-linearity. Nevertheless, we exemplify that with general utility functions, these auctions fail to identify the MPEs and are substantially inefficient and manipulatable. The implications of our negative results for multi-object auction models with agents with multi-unit demand, and matching with contracts models are also discussed.
    Date: 2021–01
  2. By: Atila Abdulkadiroglu; Joshua D. Angrist; Yusuke Narita; Parag Pathak
    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 effects 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 quantifies 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.
    Date: 2020–12
  3. By: Hadi Hosseini; Sujoy Sikdar; Rohit Vaish; Lirong Xia
    Abstract: Envy-freeness up to any good (EFX) provides a strong and intuitive guarantee of fairness in the allocation of indivisible goods. But whether such allocations always exist or whether they can be efficiently computed remains an important open question. We study the existence and computation of EFX in conjunction with various other economic properties under lexicographic preferences--a well-studied preference model in artificial intelligence and economics. In sharp contrast to the known results for additive valuations, we not only prove the existence of EFX and Pareto optimal allocations, but in fact provide an algorithmic characterization of these two properties. We also characterize the mechanisms that are, in addition, strategyproof, non-bossy, and neutral. When the efficiency notion is strengthened to rank-maximality, we obtain non-existence and computational hardness results, and show that tractability can be restored when EFX is relaxed to another well-studied fairness notion called maximin share guarantee (MMS).
    Date: 2020–12
  4. By: Marek Bojko
    Abstract: Consider the problem of assigning indivisible objects to agents with strict ordinal preferences over objects, where each agent is interested in consuming at most one object, and objects have integer minimum and maximum quotas. We define an assignment to be feasible if it satisfies all quotas and assume such an assignment always exists. The Probabilistic Serial (PS) and Random Priority (RP) mechanisms are generalised based on the same intuitive idea: Allow agents to consume their most preferred available object until the total mass of agents yet to be allocated is exactly equal to the remaining amount of unfilled lower quotas; in this case, we restrict agents' menus to objects which are yet to fill their minimum quotas. We show the mechanisms satisfy the same criteria as their classical counterparts: PS is ordinally efficient, envy-free and weakly strategy-proof; RP is strategy-proof, weakly envy-free but not ordinally efficient.
    Date: 2020–12
  5. By: Arnold Cédrick SOH VOUTSA (Université de Cergy-Pontoise, THEMA)
    Abstract: Pivato and Soh [Pivato, M., Soh, A., 2020.Weighted representative democracy. Journal of Mathematical Economics 88 (2020) 52-63] proposed a new system of democratic representation whereby any individual can choose any legislator as her representative and different legislators can represent different numbers of individuals, concomitantly determining their weights in the legislature. For such legislatures, we consider other voting rules, namely, the Weighted Approval Voting rule and Weighted Majority Judgment rule. We show that if the size of the electorate is large, then with very high probability, the decisions made by the legislature will be the same as the decisions that would have been reached by a direct democracy, as decided by the corresponding simple (unweighted) voting rules.
    Keywords: Social Choice, Ideal direct democracy, Representative democracy, Multioption decisions, Weighted Approval Voting, Weighted Majority Judgment
    JEL: D71 D72
    Date: 2020
  6. By: Frédéric Koessler (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); Vasiliki Skreta (CEPR - Center for Economic Policy Research - CEPR, University of Texas at Austin [Austin], UCL - University College of London [London])
    Abstract: A designer is privately informed about the state and chooses an information disclosure mechanism to influence the decisions of multiple agents playing a game. We define an intuitive class of incentive compatible information disclosure mechanisms which we coin interim optimal mechanisms. We prove that an interim optimal mechanism exists, and that it is an equilibrium outcome of the interim information design game. An ex-ante optimal mechanism may not be interim optimal, but it is whenever it is ex-post optimal. In addition, in leading settings in which action sets are binary, every ex-ante optimal mechanism is interim optimal. We relate interim optimal mechanisms to other solutions of informed principal problems.
    Keywords: strong-neologism proofness,neutral optimum,informed principal,Bayesian persuasion,interim information design,core mechanism,verifiable types.
    Date: 2021–02
  7. By: Sarah Auster (Department of Economics, University of Bonn); Nicola Pavoni (Department of Economics, Bocconi University)
    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.
    JEL: D82 D83 D86
    Date: 2021–01
  8. By: Angad Singh
    Abstract: Traders constantly consider the price impact associated with changing their positions. This paper seeks to understand how price impact emerges from the quoting strategies of market makers. To this end, market making is modeled as a dynamic auction using the mathematical framework of Stochastic Differential Games. In Nash Equilibrium, the market makers' quoting strategies generate a price impact function that is of the same form as the celebrated Almgren-Chriss model. The key insight is that price impact is the mechanism through which market makers earn profits while matching their books. As such, price impact is an essential feature of markets where flow is intermediated by market makers.
    Date: 2021–01
  9. By: Alessandro Ispano; Peter Vida (Université de Cergy-Pontoise, THEMA)
    Abstract: We provide an equilibrium model of interrogations with two-sided asymmetric information. The suspect knows his status as guilty or innocent and the likely strength of law enforcers' evidence, which is informative about the suspect's status and may also disprove lies. We study the evidence strength standards for interro- gating and for drawing adverse inferences from silence that minimize prosecution errors. We consider scenarios where interrogations can be delegated. We describe the optimal mechanism under full commitment and a dynamic interrogation with two-sided information revelation implementing the optimum in equilibrium.
    Keywords: lie, evidence, leniency, questioning, confession, law, prosecution, two-sided asymmetric information
    JEL: D82 D83 C72 K40
    Date: 2021

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