nep-des New Economics Papers
on Economic Design
Issue of 2021‒02‒22
eleven papers chosen by
Alex Teytelboym
University of Oxford

  1. Interview Hoarding By Vikram Manjunath; Thayer Morrill
  2. The core for housing markets with limited externalities By Bettina Klaus
  3. Matching Strategic Agents on a Two-Sided Platform By Masaki Aoyagi; Seung Han Yoo
  4. Private and common value auctions with ambiguity over correlation By Laohakunakorn, Krittanai; Levy, Gilat; Razin, Ronny
  5. Imperfect Competition and Rents in Labor and Product Markets: The Case of the Construction Industry By Kory Kroft; Yao Luo; Magne Mogstad; Bradley Setzler
  6. Competing Mechanisms and Folk Theorems: Two Examples By Andrea Attar; Eloisa Campioni; Thomas Mariotti; Gwenaël Piaser
  7. Membership Mechanism By Seung Han Yoo
  8. Static Pricing in Dynamic Sales By Martino Banchio; Frank Yang
  9. Selecting Matchings via Multiwinner Voting: How Structure Defeats a Large Candidate Space By Niclas Boehmer; Markus Brill; Ulrike Schmidt-Kraepelin
  10. Vote Delegation Favors Minority By Hans Gersbach; Akaki Mamageishvili; Manvir Schneider
  11. Vote Delegation and Misbehavior By Hans Gersbach; Akaki Mamageishvili; Manvir Schneider

  1. By: Vikram Manjunath; Thayer Morrill
    Abstract: Many centralized matching markets are preceded by interviews between the participants. We study the impact on the final match of an increase to the number of interviews one side of the market can participate in. Our motivation is the match between residents and hospitals where, due to the COVID-19 pandemic, interviews for the 2020-21 season of the NRMP match have switched to a virtual format. This has drastically reduced the cost to applicants of accepting interview offers. However, the reduction in cost is not symmetric since applicants, not programs, bore most of the costs of in-person interviews. We show that if doctors are willing to accept more interviews but the hospitals do not increase the number of interviews they offer, no doctor will be better off and potentially many doctors will be harmed. This adverse consequence results from a mechanism we describe as interview hoarding. We prove this analytically and characterize optimal mitigation strategies for special cases. We use simulations to extend the insights from our analytical results to more general settings.
    Date: 2021–02
  2. By: Bettina Klaus
    Abstract: We consider a variation of the housing market model a la Shapley and Scarf (1974) where agents care both about their own consumption via demand preferences and about the agent who receives their endowment via supply preferences (see Klaus and Meo, 2021). Then, if preferences are either all demand lexicographic or all supply lexicographic, we characterize the corresponding top trading cycles rule by individual rationality, Pareto optimality, and strategy-proofness. Since on the lexicographic preference domains the strong core can be multi-valued, our result sheds light on the fact that the properties that also characterized the strong core rule for Shapley-Scarf housing markets (Ma, 1994) characterize the top trading cycles rule and not the strong core rule (or correspondence).
    Keywords: Core, characterization, externalities, housing markets, top trading cycles rule
    JEL: C70 C71 C78 D62 D64
    Date: 2021–02
  3. By: Masaki Aoyagi; Seung Han Yoo (Department of Economics, Korea University, Seoul, Republic of Korea)
    Abstract: A platform offers sellers and buyers trading opportunities by creating one-to-one matches between them. A matching mechanism consists of a menu of subscription plans for each side and specifies fees and the probabilities with which subscribers of each plan are matched with subscribers of different plans on the other side. We characterize optimal matching mechanisms which maximize the subscription revenue under the incentive compatibility conditions. When the agents are strategic in their interactions with their matched partners, we show that the optimal matching rule may not equal socially efficient positive assortative matching (PAM) but instead focus on the extraction of the agents’ informational rents. We then examine the efficiency of the optimal mechanism in two alternative scenarios in which the platform exercises stronger control over the interactions between the matched agents. When the subscription fee can be conditioned on the success of a transaction, we show that the optimal mechanism is efficient with PAM restored as the optimal matching rule. However, when the platform has full control over the allocation and price of the good, we show that the optimal mechanism employs PAM but may create efficiency distortions by blocking some efficient transactions.
    Keywords: assortative, screening, auction, subscription, revenue maximization
    JEL: D42 D47 D62 D82 L12
    Date: 2020
  4. By: Laohakunakorn, Krittanai; Levy, Gilat; Razin, Ronny
    Abstract: We analyze auctions when individuals have ambiguity over the joint information structures generating the valuations and signals of players. We analyze how two standard auction effects interact with the ambiguity of bidders over correlation structures. First, a “competition effect” arises when different beliefs about the correlation between bidders' valuations imply different likelihoods of facing competitive bids. Second, a “winner's value effect” arises when different beliefs imply different inferences about the winner's value. In the private values case, only the first effect exists and this implies that the distribution of bids first order stochastically dominates the distribution of bids in the absence of ambiguity. In common value auctions both effects exist and we show that compared to the canonical model, both in the first-price and second-price auctions, these effects combine to imply that the seller's revenue decreases with ambiguity (in contrast with the private values case). We then characterise the optimal auction in both the private and common value cases. A novel feature that arises in the optimal mechanism in the common values case is that the seller only partially insures the high type against ambiguity.
    Keywords: Ambiguity over correlation; Optimal auctions; Private and common value auctions
    JEL: D44 D81
    Date: 2019–11–01
  5. By: Kory Kroft (University of Toronto - Department of Economics; NBER); Yao Luo (University of Toronto - Department of Economics); Magne Mogstad (University of Chicago- Department of Economics; Statistics Norway; NBER; IFS); Bradley Setzler (University of Chicago - Becker Friedman Institute for Economics)
    Abstract: The primary goal of our paper is to quantify the importance of imperfect competition in the U.S. construction industry by estimating the size of rents earned by American firms and workers. To obtain a comprehensive measure of the total rents and to understand its sources, we take into account that rents may arise both due to markdown of wages and markup of prices. Our analyses combine the universe of U.S. business and worker tax records with newly collected records from U.S. procurement auctions. We first examine how firms respond to a plausibly exogenous shift in product demand through a difference-in-differences design that compares first-time procurement auction winners to the firms that lose, both before and after the auction. Motivated and guided by these estimates, we next develop, identify, and estimate a model where construction firms compete with one another for projects in the product market and for workers in the labor market. The firms may participate both in the private market and in government projects, the latter of which are procured through first-price sealed-bid auctions. We find that American construction firms have significant wage- and price-setting power. This imperfect competition generates a considerable amount of rents, two-thirds of which is captured by the firms. Lastly, we use the estimated model to perform counterfactual analyses which reveal how increases in the market power of firms, in the product market or the labor market, would affect the outcomes and behavior of workers and firms in the construction industry.
    Keywords: Imperfect competition; monopsony; market power; rents; rent sharing; auction; procurement
    JEL: J31 J42 D44 L11
    Date: 2020
  6. By: Andrea Attar (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Eloisa Campioni (Unknown); Thomas Mariotti (Unknown); Gwenaël Piaser (Unknown)
    Abstract: We study competing-mechanism games under exclusive competition: principals first simultaneously post mechanisms, after which agents simultaneously choose to participate and communicate with at most one principal. In this setting, which is common to competing-auction and competitive-search applications, we develop two complete-information examples that question the relevance of the folk theorems for competing-mechanism games documented in the literature. The first example shows that there can exist pure-strategy equilibria in which some principal obtains a payoff below her min-max payoff, computed over all principals' decisions. Thus folk-theoremlike results may have to involve a bound on principals' payoffs that depends on the spaces of messages available to the agents, and not only on the players' actions. The second example shows that even this nonintrinsic approach is misleading when agents' participation decisions are strategic: there can exist incentive-feasible allocations in which principals obtain payoffs above their min-max payoffs, computed over arbitrary spaces of mechanisms, but which cannot be supported in equilibrium.
    Date: 2021
  7. By: Seung Han Yoo (Department of Economics, Korea University, 145 Anam-ro, Seongbuk-gu, Seoul, Republic of Korea, 02841)
    Abstract: This paper studies an environment in which a seller seeks to sell two different items to buyers. The seller designs a membership mechanism that assigns positive allocations to members only. With the member set and a membership fee, the seller finds a revenue-maximizing incentive compatible mechanism. We first establish the optimal allocation rule for this mechanism given a regularity condition for a modified valuation distribution that reflects the set, which results in the existence of membership and the simple optimal payment rule. The optimal allocation enables us to compare membership with separate participation of the two items, suggesting conditions under which membership dominates separate participation: interplay between the number of bidders and the degree of the stochastic dominance of valuation distributions. This allocation also provides a rationale for secret reserve prices, a long-standing puzzle in theory.
    Keywords: mechanism design, multidimensional types, auction
    JEL: D44 D82
    Date: 2020
  8. By: Martino Banchio; Frank Yang
    Abstract: A monopolist sells items repeatedly over time to a consumer with persistent private information. The seller has limited commitment: she cannot commit to a long-term contract but always has the option to commit to posted prices for unsold items. We show that a static price path is the unique equilibrium outcome; that is, the seller cannot do better than simply posting the monopoly price for each item. The ratchet effect eliminates price discrimination gains for any degree of persistence of the private information. The paper also shows how dynamic mechanism design can help derive new results in games with limited commitment.
    Date: 2021–02
  9. By: Niclas Boehmer; Markus Brill; Ulrike Schmidt-Kraepelin
    Abstract: Given a set of agents with approval preferences over each other, we study the task of finding $k$ matchings fairly representing everyone's preferences. We model the problem as an approval-based multiwinner election where the set of candidates consists of all possible matchings and agents' preferences over each other are lifted to preferences over matchings. Due to the exponential number of candidates in such elections, standard algorithms for classical sequential voting rules (such as those proposed by Thiele and Phragm\'en) are rendered inefficient. We show that the computational tractability of these rules can be regained by exploiting the structure of the approval preferences. Moreover, we establish algorithmic results and axiomatic guarantees that go beyond those obtainable in the general multiwinner setting. Assuming that approvals are symmetric, we show that proportional approval voting (PAV), a well-established but computationally intractable voting rule, becomes polynomial-time computable, and its sequential variant (seq-PAV), which does not provide any proportionality guarantees in general, fulfills a rather strong guarantee known as extended justified representation. Some of our positive computational results extend to other types of compactly representable elections with an exponential candidate space.
    Date: 2021–02
  10. By: Hans Gersbach; Akaki Mamageishvili; Manvir Schneider
    Abstract: We examine vote delegation when delegators do not know the preferences of representatives. We show that free delegation favors minorities, that is, alternatives that have a lower chance of winning ex-ante. The same--but to a lesser degree--occurs if the number of voting rights actual voters can have is capped. However, when the fraction of delegators increases, the probability that the ex-ante minority wins under free and capped delegation converges to the one under conventional voting--albeit non-monotonically. Finally, when the total number of voters is converging to infinity with a fixed fraction of the majority, all three probabilities converge to one, no matter the number of delegators. Therefore, vote delegation is safe on a large scale.
    Date: 2021–02
  11. By: Hans Gersbach; Akaki Mamageishvili; Manvir Schneider
    Abstract: We study vote delegation with "well-behaving" and "misbehaving" agents and compare it with conventional voting. Typical examples are validation or governance tasks on blockchains. There is a majority of well-behaving agents, but since voting is costly, they may want to abstain or delegate their vote to other agents. Misbehaving agents always vote. We compare conventional voting allowing for abstention with vote delegation. Preferences of voters are private information and a positive outcome is achieved if well-behaving voters win. We provide three insights: First, if the number of misbehaving voters, denoted by #X, is high, both voting methods fail to deliver a positive outcome. Second, if #X is moderate, conventional voting delivers a positive outcome, while vote delegation fails with probability one. Third, if #X is low, delegation delivers a positive outcome with a higher probability than conventional voting. Finally, our results allow us assessing the performance of vote delegation which is known as "liquid democracy".
    Date: 2021–02

This nep-des issue is ©2021 by Alex Teytelboym. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.