nep-des New Economics Papers
on Economic Design
Issue of 2021‒03‒15
ten papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Prior-free Dynamic Mechanism Design With Limited Liability By Mark Braverman; Jon Schneider; S. Matthew Weinberg
  2. School Assignment by Match Quality By Atila Abdulkadiroglu; Umut M. Dur; Aram Grigoryan
  3. Top of the Batch: Interviews and the Match By Federico Echenique; Ruy Gonzalez; Alistair J Wilson; Leeat Yariv
  4. Task Allocation and On-the-job Training By Mariagiovanna Baccara; SangMok Lee; Leeat Yariv
  5. Kidney Exchange: An Operations Perspective By Itai Ashlagi; Alvin E. Roth
  6. (In)efficient repo markets By Tobias Dieler; Loriano Mancini; Norman Schürhoff
  7. Permissioned distributed ledgers and the governance of money By Raphael Auer; Cyril Monnet; Hyun Song Shin
  8. The Value of Privacy in Cartels: An Analysis of the Inner Workings of a Bidding Ring By Kei Kawai; Jun Nakabayashi; Juan M. Ortner
  9. Mapping an Information Design Game into an All-Pay Auction By Oleg Muratov
  10. The Incentive Costs of Welfare Judgments By Daske, Thomas

  1. By: Mark Braverman; Jon Schneider; S. Matthew Weinberg
    Abstract: We study the problem of repeatedly auctioning off an item to one of $k$ bidders where: a) bidders have a per-round individual rationality constraint, b) bidders may leave the mechanism at any point, and c) the bidders' valuations are adversarially chosen (the prior-free setting). Without these constraints, the auctioneer can run a second-price auction to "sell the business" and receive the second highest total value for the entire stream of items. We show that under these constraints, the auctioneer can attain a constant fraction of the "sell the business" benchmark, but no more than $2/e$ of this benchmark. In the course of doing so, we design mechanisms for a single bidder problem of independent interest: how should you repeatedly sell an item to a (per-round IR) buyer with adversarial valuations if you know their total value over all rounds is $V$ but not how their value changes over time? We demonstrate a mechanism that achieves revenue $V/e$ and show that this is tight.
    Date: 2021–03
  2. By: Atila Abdulkadiroglu; Umut M. Dur; Aram Grigoryan
    Abstract: Proponents of school choice argue that it improves educational outcomes by allowing parents to self-select into schools that are most effective for their children. Contrary to these arguments, empirical evidence suggests that parents may not incorporate school effectiveness or match quality when choosing schools. The findings potentially impugn proponents' effectiveness arguments of choice-based assignment. We develop novel solutions that restore effectiveness by maximizing match quality subject to stability constraints. Maximization algorithms are provided for both small and large school districts. Simulations reveal substantial match quality gains from our solutions compared to the celebrated Deferred Acceptance mechanism with a random tie-breaker. Our methodology can be used to optimize for other policy objectives in school choice or other priority-based matching problems.
    JEL: D47 I20
    Date: 2021–02
  3. By: Federico Echenique (Caltech); Ruy Gonzalez (Caltech); Alistair J Wilson (University of Pittsburgh); Leeat Yariv (Princeton University, CEPR, and NBER)
    Abstract: Most doctors in the NRMP match with one of their most-preferred internship pro-grams. However, surveys indicate doctors’ preferences are similar, suggesting a puzzle:how can so many doctors match with their top choices when positions are scarce? We provide one possible explanation. We show that the patterns in the NRMP data may bean artifact of the interview process that precedes the match. Our study highlights the importance of understanding market interactions occurring before and after a matching clearinghouse, and casts doubts on analyses of clearinghouses that take reported preferences at face value.
    Keywords: NRMP, Deferred acceptance, Interviews, First-rank matches, National Resident Matching Program, United States
    JEL: C78 D47 J44
    Date: 2020–12
  4. By: Mariagiovanna Baccara (Washington University in St. Louis); SangMok Lee (Washington University in St. Louis); Leeat Yariv (Princeton University)
    Abstract: We study dynamic task allocation when service providers' expertise evolves. Clients arrive sequentially seeking service. Seniors provide superior service but entail waiting in a queue, which progresses at a speed dependent on their volume. Juniors o§er service without wait and become seniors with experience. We show that clients choose senior service too frequently, generating longer waits and little training relative to the social optimum. Welfare gains from centralization are greater for larger institutions, better training technologies, and lower waiting costs. Finally, monitoring the seniors' queue increases welfare but may decrease training. Methodologically, we explore a matching setting in which agents' types are endogenous, and illustrate the usefulness of queuing theory techniques.
    Keywords: Dynamic Matching, Training-by-Doing, Market Design
    JEL: J22
    Date: 2020–10
  5. By: Itai Ashlagi; Alvin E. Roth
    Abstract: Many patients in need of a kidney transplant have a willing but incompatible (or poorly matched) living donor. Kidney exchange programs arrange exchanges among such patient-donor pairs, in cycles and chains of exchange, so each patient receives a compatible kidney. Kidney exchange has become a standard form of transplantation in the United States and a few other countries, in large part because of continued attention to the operational details that arose as obstacles were overcome and new obstacles became relevant. We review some of the key operational issues in the design of successful kidney exchange programs. Kidney exchange has yet to reach its full potential, and the paper further describes some open questions that we hope will continue to attract attention from researchers interested in the operational aspects of dynamic exchange.
    JEL: D47 I11
    Date: 2021–02
  6. By: Tobias Dieler (University of Bristol - Department of Finance and Accounting); Loriano Mancini (USI Lugano - Institute of Finance; Swiss Finance Institute); Norman Schürhoff (University of Lausanne; Swiss Finance Institute; Centre for Economic Policy Research (CEPR))
    Abstract: Repo markets trade off the efficient allocation of liquidity in the financial sector with resilience to funding shocks. The repo trading and clearing mechanisms are crucial determinants of the allocation-resilience tradeoff. The two common mechanisms, anonymous central-counterparty (CCP) and non-anonymous over-the-counter (OTC) markets, are inefficient and their welfare rankings depend on funding tightness. CCP (OTC) markets inefficiently liquidate high (low) quality assets for large (small) funding shocks. Two innovations to repo market design contribute to maximize welfare: a liquidity-contingent trading mechanism and a two-tiered guarantee fund.
    Keywords: repo market, funding run, financial stability, asymmetric information, central clearing, novation, guarantee fund, collateral
    JEL: G01 G14 G21 G28
    Date: 2021–02
  7. By: Raphael Auer; Cyril Monnet; Hyun Song Shin
    Abstract: We explore the economics and optimal design of "permissioned" distributed ledger technology (DLT) in a credit economy. Designated validators verify transactions and update the ledger at a cost that is derived from a supermajority voting rule, thus giving rise to a public good provision game. Without giving proper incentives to validators, however, their records cannot be trusted because they cannot commit to verifying trades and they can accept bribes to incorrectly validate histories. Both frictions challenge the integrity of the ledger on which credit transactions rely. In this context, we examine the conditions under which the process of permissioned validation supports decentralized exchange as an equilibrium, and analyze the optimal design of the trade and validation mechanisms. We solve for the optimal fees, number of validators, supermajority threshold and transaction size. A stronger consensus mechanism requires higher rents be paid to validators. Our results suggest that a centralized ledger is likely to be superior, unless weaknesses in the rule of law and contract enforcement necessitate a decentralized ledger.
    Keywords: digital currencies, money, distributed ledger, blockchain, coordination game, global game, consensus, market design
    JEL: C72 C73 D4 E42 G2 L86
    Date: 2021–01
  8. By: Kei Kawai; Jun Nakabayashi; Juan M. Ortner
    Abstract: We study the inner workings of a bidding cartel focusing on the way in which bidders communicate with one another regarding how each bidder should bid. We show that the designated winner of the cartel can attain higher payoffs by randomizing its bid and keeping it secret from other bidders when defection is a concern. Intuitively, randomization makes defection less attractive as potential defectors face the risk of not winning the auction even if they deviate. We illustrate how our theoretical predictions are borne out in practice by studying a bidding cartel that operated in the town of Kumatori, Japan.
    JEL: L41
    Date: 2021–03
  9. By: Oleg Muratov
    Abstract: I show that there exists a mapping between a class of information design games with multiple senders and a class of all-pay auctions. I fully characterize this mapping and show how to use it to find equilibria in the information design game. Such an approach could be applied to establish mappings between other classes of information design games, on the one hand, and contests, on the other.
    Date: 2021–03
  10. By: Daske, Thomas
    Abstract: This paper draws an incentive-theoretical perspective on the concept of social welfare. In a simple mechanism-design framework, agents' interpersonal preferences and private payoffs are all subject to asymmetric information. Under reasonable normative assumptions, the following result is established: A policy can be implemented with a budget-balanced mechanism if and only if it is consistent with materialistic utilitarianism, which seeks to maximize aggregate material wealth, not utility. Any other policy, to be implementable, must violate budget balance and therefore comes at incentive costs. The corresponding mechanism is virtually unique, which allows for conclusions upon distributive and procedural justice.
    Keywords: mechanism design,social welfare,distributive justice,procedural justice,utilitarianism,dictatorship
    JEL: C78 D60 D82
    Date: 2021

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