
on Economic Design 
Issue of 2021‒04‒12
twelve papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford 
By:  Attar, Andrea; Mariotti, Thomas; Salanié, François 
Abstract:  This article surveys recent attempts at characterizing competitive allocations under adverse selection when each informed agent can privately trade with several uninformed parties: that is, trade is nonexclusive. We rst show that requiring market outcomes to be robust to entry selects a unique candidate allocation, which involves crosssubsidies. We then study how to implement this allocation as the equilibrium outcome of a game in which the uninformed parties, acting as principals, compete by making oers to the informed agents. We show that equilibria typically fail to exist in competitive screening games, in which these oers are simultaneous. We nally explore alternative extensive forms, and show that the candidate allocation can be implemented through a discriminatory ascending auction. These results yield sharp predictions for competitive nonexclusive markets. 
Keywords:  Adverse Selection; EntryProofness; Discriminatory Pricing; Nonexclusive; Markets; Ascending Auctions 
JEL:  D43 D82 D86 
Date:  2021–04 
URL:  http://d.repec.org/n?u=RePEc:tse:wpaper:125475&r=all 
By:  Matheus V. X. Ferreira; Daniel J. Moroz; David C. Parkes; Mitchell Stern 
Abstract:  In recent years, prominent blockchain systems such as Bitcoin and Ethereum have experienced explosive growth in transaction volume, leading to frequent surges in demand for limited block space, causing transaction fees to fluctuate by orders of magnitude. Under the standard firstprice auction approach, users find it difficult to estimate how much they need to bid to get their transactions accepted (balancing the risk of delay with a preference to avoid paying more than is necessary). In light of these issues, new transaction fee mechanisms have been proposed, most notably EIP1559. A problem with EIP1559 is that under market instability, it again reduces to a firstprice auction. Here, we propose dynamic postedprice mechanisms, which are ex post Nash incentive compatible for myopic bidders and dominant strategy incentive compatible for myopic miners. We give sufficient conditions for which our mechanisms are stable and approximately welfare optimal in the probabilistic setting where each time step, bidders are drawn i.i.d. from a static (but unknown) distribution. Under this setting, we show instances where our dynamic mechanisms are stable, but EIP1559 is unstable. Our main technical contribution is an iterative algorithm that, given oracle access to a Lipschitz continuous and concave function $f$, converges to a fixed point of $f$. 
Date:  2021–03 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2103.14144&r=all 
By:  Yiling Chen; Alon Eden; Juntao Wang 
Abstract:  In real life auctions, a widely observed phenomenon is the winner's curse  the winner's high bid implies that the winner often overestimates the value of the good for sale, resulting in an incurred negative utility. The seminal work of Eyster and Rabin [Econometrica'05] introduced a behavioral model aimed to explain this observed anomaly. We term agents who display this bias "cursed agents". We adopt their model in the interdependent value setting, and aim to devise mechanisms that prevent the cursed agents from obtaining negative utility. We design mechanisms that are cursed expost IC, that is, incentivize agents to bid their true signal even though they are cursed, while ensuring that the outcome is individually rational  the price the agents pay is no more than the agents' true value. Since the agents might overestimate the good's value, such mechanisms might require the seller to make positive transfers to the agents to prevent agents from overpaying. For revenue maximization, we give the optimal deterministic and anonymous mechanism. For welfare maximization, we require expost budget balance (EPBB), as positive transfers might lead to negative revenue. We propose a masking operation that takes any deterministic mechanism, and imposes that the seller would not make positive transfers, enforcing EPBB. We show that in typical settings, EPBB implies that the mechanism cannot make any positive transfers, implying that applying the masking operation on the fully efficient mechanism results in a socially optimal EPBB mechanism. This further implies that if the valuation function is the maximum of agents' signals, the optimal EPBB mechanism obtains zero welfare. In contrast, we show that for sumconcave valuations, which include weightedsum valuations and l_pnorms, the welfare optimal EPBB mechanism obtains half of the optimal welfare as the number of agents grows large. 
Date:  2021–04 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2104.00835&r=all 
By:  Anna bogomolnaia Ron Holzman Herve Moulin 
Abstract:  The guarantee of an anonymous mechanism is the worst case welfare an agent can secure against unanimously adversarial others. How high can such a guarantee be, and what type of mechanism achieves it? We address the worst case design question in the nperson probabilistic voting/bargaining model with p deterministic outcomes. If n is no less than p the uniform lottery is the only maximal (unimprovable) guarantee; there are many more if p>n, in particular the ones inspired by the random dictator mechanism and by voting by veto. If n=2 the maximal set M(n,p) is a simple polytope where each vertex combines a round of vetoes with one of random dictatorship. For p>n>2, we show that the dual veto and random dictator guarantees, together with the uniform one, are the building blocks of 2 to the power d simplices of dimension d in M(n,p), where d is the quotient of p1 by n. Their vertices are guarantees easy to interpret and implement. The set M(n,p) may contain other guarantees as well; what we can say in full generality is that it is a finite union of polytopes, all sharing the uniform guarantee. 
Date:  2021–04 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2104.02316&r=all 
By:  Kiho Yoon 
Abstract:  We study the robust double auction mechanisms, that is, the double auction mechanisms that satisfy dominant strategy incentive compatibility, expost individual rationality, expost budget balance and feasibility. We first establish that the price in any deterministic robust mechanism does not depend on the valuations of the trading players. We next establish that, with the nonbossiness assumption, the price in any deterministic robust mechanism does not depend on players' valuations at all, whether trading or nontrading, i.e., the price is posted in advance. Our main result is a characterization result that, with the nonbossiness assumption along with other assumptions on the properties of the mechanism, the posted price mechanism with an exogenous rationing rule is the only deterministic robust double auction mechanism. We also show that, even without the nonbossiness assumption, it is quite difficult to find a reasonable robust double auction mechanism other than the posted price mechanism with rationing. 
Date:  2021–02 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2102.00669&r=all 
By:  Christopher P. Chambers (Department of Economics, Georgetown University); Juan D. MorenoTernero (Department of Economics, Universidad Pablo de Olavide;) 
Abstract:  We explore the implications of three basic and intuitive axioms for income redistribution problems: continuity, no transfer paradox and stability. The combination of the three axioms characterizes in the twoagent case a large family of rules, which we call threshold rules. For each level of total income in society, a threshold is considered for each agent. It is impossible for both agents to be below their respective thresholds. If an agent’s income is below the threshold, the difference is redistributed from the other agent; otherwise, the rule imposes laissezfaire. 
Keywords:  income redistribution, axioms, stability, continuity, no transfer paradox 
JEL:  D63 
Date:  2021 
URL:  http://d.repec.org/n?u=RePEc:pab:wpaper:21.07&r=all 
By:  Vincent Anesi (Department of Economics and Management, Université du Luxembourg); Mikhail Safronov (University of Cambridge, UK) 
Abstract:  We study how the institutional arrangements for ending deliberation  the “cloture Rules”  interact with collective learning to affect the outcomes of decision making in committees. In contrast to much of the previous literature on deliberative commit tees, this paper makes a distinction between the final votes over policy proposals and the cloture votes that bring them about. Using this approach, we explore how clo ture rules influence the course of deliberation, the likelihood of inefficient deliberative outcomes, the circumstances surrounding failures to bring proposals to a final vote, and the distribution of power among committee members in the deliberative process. We also use our simple model to examine the issue of the stability of cloture rules, characterizing the rules that no coalition of committee members is able or willing to overturn. We show in particular that all cloture rules are dynamically stable. 
Keywords:  Cloture, deliberation, obstruction, pivots, political failure, stability, voting. 
JEL:  D02 D71 D72 D83 
Date:  2021 
URL:  http://d.repec.org/n?u=RePEc:luc:wpaper:2103&r=all 
By:  YingHua He; Shruti Sinha; Xiaoting Sun 
Abstract:  In a setting of manytoone twosided matching with nontransferable utilities, e.g., college admissions, we study conditions under which preferences of both sides are identified with data on one single market. The main challenge is that every agent's actual choice set is unobservable to the researcher. Assuming that the observed matching is stable, we show nonparametric and semiparametric identification of preferences of both sides under appropriate exclusion restrictions. Our identification arguments are constructive and thus directly provide a semiparametric estimator. In Monte Carlo simulations, the estimator can perform well but suffers from the curse of dimensionality. We thus adopt a parametric model and estimate it by a Bayesian approach with a Gibbs sampler, which works well in simulations. Finally, we apply our method to school admissions in Chile and conduct a counterfactual analysis of an affirmative action policy. 
Date:  2021–04 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2104.02009&r=all 
By:  Haris Aziz; Anton Baychkov; Peter Biro 
Abstract:  We introduce a new twosided stable matching problem that describes the summer internship matching practice of an Australian university. The model is a case between two models of Kamada and Kojima on matchings with distributional constraints. We study three solution concepts, the strong and weak stability concepts proposed by Kamada and Kojima, and a new one in between the two, called cutoff stability. Kamada and Kojima showed that a strongly stable matching may not exist in their most restricted model with disjoint regional quotas. Our first result is that checking its existence is NPhard. We then show that a cutoff stable matching exists not just for the summer internship problem but also for the general matching model with arbitrary heredity constraints. We present an algorithm to compute a cutoff stable matching and show that it runs in polynomial time in our special case of summer internship model. However, we also show that finding a maximum size cutoff stable matching is NPhard, but we provide a Mixed Integer Linear Program formulation for this optimisation problem. 
Date:  2021–02 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2102.02931&r=all 
By:  Mohammad Akbarpour; Yeganeh Alimohammadi; Shengwu Li; Amin Saberi 
Abstract:  We study dynamic matching in a spatial setting. Drivers are distributed at random on some interval. Riders arrive in some (possibly adversarial) order at randomly drawn points. The platform observes the location of the drivers, and can match newly arrived riders immediately, or can wait for more riders to arrive. Unmatched riders incur a waiting cost $c$ per period. The platform can match riders and drivers, irrevocably. The cost of matching a driver to a rider is equal to the distance between them. We quantify the value of slightly increasing supply. We prove that when there are $(1+\epsilon)$ drivers per rider (for any $\epsilon > 0$), the cost of matching returned by a simple greedy algorithm which pairs each arriving rider to the closest available driver is $O(\log^3(n))$, where $n$ is the number of riders. On the other hand, with equal number of drivers and riders, even the \emph{ex post} optimal matching does not have a cost less than $\Theta(\sqrt{n})$. Our results shed light on the important role of (small) excess supply in spatial matching markets. 
Date:  2021–04 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2104.03219&r=all 
By:  Raicho Bojilov; Alfred Galichon 
Abstract:  This paper provides closedform formulas for a multidimensional twosided matching problem with transferable utility and heterogeneity in tastes. When the matching surplus is quadratic, the marginal distributions of the characteristics are normal, and when the heterogeneity in tastes is of the continuous logit type, as in Choo and Siow (2006), we show that the optimal matching distribution is also jointly normal and can be computed in closed form from the model primitives. Conversely, the quadratic surplus function can be identified from the optimal matching distribution, also in closedform. The closedform formulas make it computationally easy to solve problems with even a very large number of matches and allow for quantitative predictions about the evolution of the solution as the technology and the characteristics of the matching populations change. 
Date:  2021–02 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2102.04295&r=all 
By:  Tayfun S\"onmez; M. Bumin Yenmez 
Abstract:  Sanctioned by its constitution, India is home to an elaborate affirmative action program for allocation of public jobs, where historically discriminated groups are protected with vertical reservations implemented as "set asides," and other disadvantaged groups are protected with horizontal reservations implemented as "minimum guarantees." Concurrent implementation of these two policies with overlapping beneficiaries makes this program more complex than others elsewhere. An allocation mechanism mandated by the Supreme Court judgement Anil Kumar Gupta vs. Uttar Pradesh (1995) suffers from a number of anomalies, including disadvantaged candidates losing positions to privileged candidates of lower merit, triggering countless litigations and disarray in the country. Foretelling a recent reform in India, we propose an alternative mechanism that resolves all anomalies, and uniquely characterize it with desiderata reflecting the laws of India. Subsequently reinvented with an August 2020 High Court judgement and mandated for the state of Gujarat, our mechanism is endorsed for India with a December 2020 judgement of the Supreme Court. 
Date:  2021–02 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2102.03186&r=all 