nep-des New Economics Papers
on Economic Design
Issue of 2021‒03‒08
eight papers chosen by
Alex Teytelboym
University of Oxford

  1. Strong Substitutes: Structural Properties, and a New Algorithm for Competitive Equilibrium Prices By Elizabeth Baldwin; Martin Bichler; Maximilian Fichtl; Paul Klemperer
  2. Teams and Individuals in Standard Auction Formats: Decisions and Emotions By Karmeliuk, Maria; Kocher, Martin
  3. A characterization of the Vickery rule in slot allocation problems By Yu Zhou; Youngsub Chun; Shigehiro Serizawa
  4. Shapley-Scarf Housing Markets: Respecting Improvement, Integer Programming, and Kidney Exchange By Péter Biró; Flip Klijn; Xenia Klimentova; Ana Viana
  5. Allocation Mechanisms Without Reduction By David Dillenberger; Uzi Segal
  6. Costly Information Acquisition in Centralized Matching Markets By Hakimov, Rustamdjan; Kübler, Dorothea; Pan, Siqi
  7. The core for housing markets with limited externalities By Bettina Klaus; Claudio Meo
  8. Optimal Tax Problems with Multidimensional Heterogeneity: A Mechanism Design Approach By Laurence Jacquet; Etienne Lehmann

  1. By: Elizabeth Baldwin (Dept of Economics, Oxford University); Martin Bichler (Dept of Computer Science, Technical University of Munich); Maximilian Fichtl (Dept of Computer Science, Technical University of Munich); Paul Klemperer (Dept of Economics, Oxford University)
    Abstract: We show the Strong Substitutes Product-Mix Auction (SSPMA) bidding language provides an intuitive and geometric interpretation of strong substitutes as Minkowski differences between sets that are easy to identify. We prove that competitive equilibrium prices for agents with strong substitutes preferences can be computed by minimizing the difference between two linear programs for the positive and the negative bids with suitably relaxed resource constraints. This also leads to a new algorithm for computing competitive equilibrium prices which is competitive with standard steepest descent algorithms in extensive experiments.
    Keywords: Competitive equilibrium, Walrasian equilibrium, Strong substitutes, Product-Mix auction, Envy-free prices, Indivisible goods, Equilibrium computation, DC programming, Auction theory, Algorithms
    Date: 2021–02–08
  2. By: Karmeliuk, Maria (LMU Munich); Kocher, Martin (University of Vienna)
    Abstract: Our study compares individual and team bidding in standard auction formats: first-price, second-price and ascending-price (English) auctions with independent private values. In a laboratory experiment, we find that individuals overbid more than teams in first-price auctions and deviate more from bidding their own value in second-price auctions. However we observe no difference in bidding behavior in English auctions. Based on control variables, we claim that the observed difference can be explained by better reasoning abilities of teams. Emotions play a role in determining bids, but the effect of emotions on bidding does not differ between individuals and teams.
    Keywords: auctions; team decision-making; experiment; overbidding;
    JEL: C91 C92 D44
    Date: 2021–02–26
  3. By: Yu Zhou; Youngsub Chun; Shigehiro Serizawa
    Abstract: We study the slot allocation problem where agents have quasi-linear single-peaked preferences over slots and identify the rules satisfying efficiency, strategy-proofness, and individual rationality. Since the quasi-linear single-peaked domain is not connected, the famous characterization of the Vickrey rule in terms of the three properties in Holmstrom (1979) cannot be applied. However, we are able to establish that on the quasi-linear single-peaked domain, the Vickrey rule is still the only rule satisfying efficiency, strategy-proofness, and individual rationality.
    Date: 2021–03
  4. By: Péter Biró; Flip Klijn; Xenia Klimentova; Ana Viana
    Abstract: In a housing market of Shapley and Scarf (1974), each agent is endowed with one indivisible object and has preferences over all objects. An allocation of the objects is in the (strong) core if there exists no (weakly) blocking coalition. In this paper we show that in the case of strict preferences the unique strong core allocation (or competitive allocation) "respects improvement": if an agent's object becomes more attractive for some other agents, then the agent's allotment in the unique strong core allocation weakly improves. We obtain a general result in case of ties in the preferences and provide new integer programming formulations for computing (strong) core and competitive allocations. Finally, we conduct computer simulations to compare the game-theoretical solutions with maximum size and maximum weight exchanges for markets that resemble the pools of kidney exchange programmes.
    Keywords: housing market, respecting improvement, core, competitive allocations, integer programming, kidney exchange programmes
    JEL: C61 C63 C71 C78 D63
    Date: 2021–02
  5. By: David Dillenberger (University of Pennsylvania); Uzi Segal (Boston College)
    Abstract: We study a simple variant of the house allocation problem (one-sided matching). We demonstrate that agents with recursive preferences may systematically prefer one allocation mechanism to the other, even among mechanisms that are considered to be the same in standard models, in the sense that they induce the same probability distribution over successful matchings. Using this, we propose a new Priority Groups mechanism and provide conditions under which it is preferred to two popular mechanisms, Random Top Cycle and Random Serial Dictatorship.
    Keywords: House allocation problem, Non-expected utility, Random Top Cycle, Random Serial Dictatorship, Reduction of compound lotteries.
    JEL: D81 C78
    Date: 2021–02–25
  6. By: Hakimov, Rustamdjan (University of Lausanne and WZB Berlin); Kübler, Dorothea (WZB Berlin and TU Berlin); Pan, Siqi (University of Melbourne)
    Abstract: Every year during school and college admissions, students and their parents devote considerable time and effort to acquiring costly information about their own preferences. In a market where students are ranked by universities based on exam scores, we explore ways to reduce wasteful information acquisition that is, to help students avoid acquiring information about their out-of-reach schools or universities using a market design approach. We find that, both theoretically and experimentally, a sequential serial dictatorship mechanism leads to less wasteful information acquisition and higher student welfare than a direct serial dictatorship mechanism. This is because the sequential mechanism informs students about which universities are willing to admit them, thereby directing their search. Additionally, our experiments show that the sequential mechanism has behavioral advantages because subjects deviate from the optimal search strategy less frequently under the sequential than under the direct mechanism. We also investigate the effects of providing historical cutoff scores under the direct mechanism. We find that the cutoff provision can increase student welfare, especially when the information costs are high, although the effect is weaker than that of a sequential mechanism.
    Keywords: matching market; deferred acceptance; information acquisition; game theory; lab experiment;
    JEL: C92 D47
    Date: 2021–02–26
  7. By: Bettina Klaus; Claudio Meo
    Abstract: We propose a variant of the housing market model a la Shapley and Scarf (1974) that incorporates a limited form of externality in consumption; that is, agents care both about their own consumption (demand preferences) and about the agent who receives their endowment (supply preferences).We consider different domains of preference relations by taking demand and supply aspects of preferences into account. First, for markets with three agents who have (additive) separable preferences such that all houses and agents are acceptable, the strong core is nonempty; a result that can be neither extended to the unacceptable case nor to markets with a larger number of agents. Second, for markets where all agents have demand lexicographic preferences (or all of them have supply lexicographic preferences), we show that the strong core is nonempty, independent of the number of agents and the acceptability of houses or agents, and possibly multi-valued.
    Keywords: Externalities,housing markets, weak core, strong core
    JEL: C70 C71 C78 D62 D64
    Date: 2021–02
  8. By: Laurence Jacquet; Etienne Lehmann
    Abstract: We propose a new method, that we call an allocation perturbation, to derive the optimal nonlinear income tax schedules with multidimensional individual characteristics on which taxes cannot be conditioned. It is well established that, when individuals differ in terms of preferences on top of their skills, optimal marginal tax rates can be negative. In contrast, we show that with heterogeneous behavioral responses and skills, one has optimal positive marginal tax rates, under utilitarian preferences and maximin.
    Keywords: optimal taxation, mechanism design, multidimensional screening problems, allocation perturbation
    Date: 2021

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