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on Economic Design |
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Issue of 2021‒03‒22
twelve papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Bos, Olivier; Pollrich, Martin |
| Abstract: | We study optimal auctions in a symmetric private values setting, where bidders' care about winning the object and a receiver's inference about their type. We reestablish revenue equivalence when bidders' signaling concerns are linear, and the auction makes participation observable via an entry fee. With convex signaling concerns, optimal auctions are fully transparent: every standard auction, which reveals all bids yields maximal revenue. With concave signaling concerns there is no general revenue ranking. We highlight a trade-off between maximizing revenue derived from signaling, and extracting information from bidders. Our methodology combines tools from mechanism design with tools from Bayesian persuasion. |
| Keywords: | optimal auctions,revenue equivalence,Bayesian persuasion,information design |
| JEL: | D44 D82 |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:20091&r=all |
| By: | Bernardo David (IT University of Copenhagen, Copenhagen, Denmark); Lorenzo Gentile (IT University of Copenhagen, Copenhagen, Denmark); Mohsen Pourpouneh (Department of Food and Resource Economics, University of Copenhagen) |
| Abstract: | Auctioning an asset with sealed bids has been shown to be economically optimal but requires trusting an auctioneer who analyzes the bids and determines the winner. Many privacy preserving computation protocols for auctions have been proposed, aiming at eliminating the need for a trusted third party. However, they lack fairness, meaning that the adversary learns the outcome of the auction before honest parties and may choose to make the protocol fail without suffering any consequences. In this work, we propose efficient protocols for both first and second price sealed bid auctions with fairness against rational adversaries, leveraging secret cryptocurrency transactions and public smart contracts. In our approach, the bidders jointly compute the winner of the auction while preserving the privacy of losing bids and ensuring that cheaters are financially punished by losing a secret collateral deposit. We guarantee that it is never profitable for rational adversaries to cheat by making the deposit equal to the bid plus the cost of running the protocol, i.e., once a party commits to a bid it is guaranteed that it has the funds and it cannot walk away from the protocol without forfeiting the bid. Moreover, our protocols guarantee that the winner is determined and the auction payments are completed even if the adversary misbehaves, so that it cannot force the protocol to fail and then rejoin the auction with an adjusted bid. Our constructions are more efficient than the state-of-the-art even though they achieve stronger security guarantees, i.e., fairness. Interestingly, we show how the second price can be computed with a minimal increase of the complexity of the simpler first price case. Moreover, in case there is no cheating, only collateral deposit and refund transactions must be sent to the smart contract, significantly saving on-chain storage. |
| Keywords: | Cryptographic Protocols, Multiparty Computation, Financial Cryptography, Auctions, Fairness, Blockchain |
| JEL: | D40 D44 C57 |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:foi:wpaper:2021_02&r=all |
| By: | Santiago Balseiro; Omar Besbes; Francisco Castro |
| Abstract: | A fundamental assumption in classical mechanism design is that buyers are perfect optimizers. However, in practice, buyers may be limited by their computational capabilities or a lack of information, and may not be able to perfectly optimize their response to a mechanism. This has motivated the introduction of approximate incentive compatibility (IC) as an appealing solution concept for practical mechanism design. While most of the literature has focused on the analysis of particular approximate IC mechanisms, this paper is the first to study the design of \textit{optimal} mechanisms in the space of approximate IC mechanisms and to explore how much revenue can be garnered by moving from exact to approximate incentive constraints. In particular, we study the problem of a seller facing one buyer with private values and analyze optimal selling mechanisms under $\varepsilon$-incentive compatibility. We establish that an optimal mechanism needs to randomize as soon as $\varepsilon>0$ and that no mechanism can garner gains higher than order $\varepsilon^{2/3}$. This improves upon state-of-the art results which imply maximum gains of $\varepsilon^{1/2}$. Furthermore, we construct a mechanism that is guaranteed to achieve order $\varepsilon^{2/3}$ additional revenues, leading to a tight characterization of the revenue implications of approximate IC constraints. Our study sheds light on a novel class of optimization problems and the challenges that emerge when relaxing IC constraints. In particular, it brings forward the need to optimize not only over allocations and payments but also over best responses, and we develop a new framework to address this challenge. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.03403&r=all |
| By: | Yannai A. Gonczarowski; Nicole Immorlica; Yingkai Li; Brendan Lucier |
| Abstract: | We study mechanisms for selling a single item when buyers have private values for their outside options, which they forego by participating in the mechanism. This substantially changes the revenue maximization problem. For example, the seller can strictly benefit from selling lotteries already in the single-buyer setting. We bound the menu size and the sample complexity for the optimal single-buyer mechanism. We then show that posting a single price is in fact optimal under the assumption that the item value distribution has decreasing marginal revenue or monotone hazard rate. Moreover, when there are multiple buyers, we show that sequential posted pricing guarantees a large fraction of the optimal revenue when the item value distribution has decreasing marginal revenue. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.03980&r=all |
| By: | Yingkai Li |
| Abstract: | We consider the model of the data broker selling information to a single agent to maximize his revenue. The agent has private valuation for the additional information, and upon receiving the signal from the data broker, the agent can conduct her own experiment to refine her posterior belief on the states with additional costs. In this paper, we show that in the optimal mechanism, there is no distortion at the top and the agent has no incentive to acquire any additional costly information under equilibrium. Still, the ability to acquire additional information distorts the incentives of the agent, and reduces the optimal revenue of the data broker. Finally, we show that posting a deterministic price on fully revealing the states is optimal when the prior distribution is sufficiently informative. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.05788&r=all |
| By: | Aygün, Orhan; Turhan, Bertan |
| Abstract: | Reserve systems have been designed and implemented for numerous real-world resource allocation problems. Often, de-reservation policies accompany reserve systems to prevent waste in instances of low demand for exclusive reserve categories. De-reservation policies must be executed carefully so that allocation mechanisms have desired properties. We evaluate the de-reservation policy that has been implemented in admissions to technical universities in India and reveal its shortcomings. We introduce two families of choice procedures—backward and forward transfers choice rules—and deferred acceptance mechanisms with respect to these choice rules to retrieve these shortcomings. We introduce a framework to compare choice rules on the basis of merit and show that forward transfers choice rules select more meritorious sets than backward transfers choice rules. |
| Date: | 2021–03–10 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202103100800001123&r=all |
| By: | Tierney, Ryan (Department of Business and Economics) |
| Abstract: | We study the classical problem of trade in two-dimensional Euclidean space. It is known that there is no efficient rule for this model that is compatible with dominant strategy incentives, that is, there is no efficient and strategy-proof rule. We observe that, in addition to incentive constraints, informational constraints are also unavoidable for social planners. Thus, we impose the requirement that finite dimensional messages be sufficient information to realize a rule. In addition, we impose the minimal fairness axioms of anonymity and a weakening of non-bossiness, as well as continuity. The result is a class of rules that is similar to those characterized by Barberà and Jackson ["Strategy-proof exchange", Econometrica, 63 (1995), 51-87]. |
| Keywords: | Strategy-proof exchange; communication complexity |
| JEL: | D44 D47 D51 D83 |
| Date: | 2021–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2021_004&r=all |
| By: | François Durand (Nokia Bell Labs, LINCS - Laboratory of Information, Network and Communication Sciences - Inria - Institut National de Recherche en Informatique et en Automatique - IMT - Institut Mines-Télécom [Paris] - SU - Sorbonne Université); Antonin Macé (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 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, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 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); Matias Nunez (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We study how voting rules shape voter coordination in large three-candidate elections. We consider three rules, varying according to the number of candidates that voters can support in their ballot: Plurality (one), Anti-Plurality (two) and Approval Voting (one or two). We show that the Condorcet winner—a normatively desirable candidate—can always be elected at equilibrium under Approval Voting. We then numerically study a dynamic process of political tâtonnement. Monte-Carlo simulations of the process deliver rich insights on election outcomes. The Condorcet winner is virtually always elected under Approval Voting, but not under the other rules. The dominance of Approval Voting is robust to alternative welfare criteria and to the introduction of expressive voters. |
| Keywords: | Approval voting,Poisson games,Strategic voting,Condorcet consistency,Fictitious play,Expressive voting |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-03162184&r=all |
| 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 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_256&r=all |
| By: | Federico Vaccari |
| Abstract: | I study a multi-sender signaling game between an uninformed decision maker and two senders with common private information and conflicting interests. Senders can misreport information at a cost that is tied to the size of the misrepresentation. The main results concern the amount of information that is transmitted in equilibrium and the language used by senders to convey such information. Fully revealing and pure-strategy equilibria exist but are not plausible. I first identify sufficient conditions under which equilibria are essentially unique, robust, and always exist, and then deliver a complete characterization of these equilibria. As an application, I study the informative value of different judicial procedures. |
| Date: | 2021–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2103.05317&r=all |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Philipp Strack (Cowles Foundation, Yale University) |
| Abstract: | A single seller faces a sequence of buyers with unit demand. The buyers are forward-looking and long-lived. The arrival time and the valuation is private information of each buyer. Any incentive compatible mechanism has to induce truth-telling about the arrival time and the evolution of the valuation. We derive the optimal stationary mechanism in closed form and characterize its qualitative structure. As the arrival time is private information, the buyer can choose the time at which he reports his arrival. The truth-telling constraint regarding the arrival time can be represented as an optimal stopping problem. The stopping time determines the time at which the buyer decides to participate in the mechanism. The resulting value function of each buyer cannot be too convex and must be continuously di?erentiable everywhere, reflecting the option value of delaying participation. The optimal mechanism thus induces progressive participation by each buyer: he participates either immediately or at a future random time. |
| Keywords: | Dynamic Mechanism Design, Observable Arrival, Unobservable Arrival, Repeated Sales, Interim Incentive Constraints, Interim Participation Constraints, Stopping Problem, Option Value, Progressive Participation |
| JEL: | D44 D82 D83 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2189r3&r=all |
| By: | Lach, Saul; Neeman, Zvika; Schankerman, Mark |
| Abstract: | We study how to design an optimal government loan program for risky R&D projects with positive externalities. With adverse selection, the optimal government contract involves a high interest rate but nearly zero co-financing by the entrepreneur. This contrasts sharply with observed loan schemes. With adverse selection and moral hazard, allowing for two levels of effort by the entrepreneur, the optimal policy consists of a menu of at most two contracts, one with high interest and zero self-financing, and a second with a lower interest plus co-financing. Calibrated simulations assess welfare gains from the optimal policy, observed loan programs, and a direct subsidy to private venture capital firms. The gains vary with the size of the externalities, cost of public funds, and effectiveness of the private VC industry. |
| Keywords: | Mechanism design; Innovation; R&D; Entrepreneurship; Additionality; Government finance; Venture capital |
| JEL: | E6 F3 G3 |
| Date: | 2020–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:105873&r=all |