nep-des New Economics Papers
on Economic Design
Issue of 2021‒07‒12
eight papers chosen by
Alex Teytelboym
University of Oxford

  1. Matching with externalities By Marek Pycia; M. Bumin Yenmez
  2. A theory of simplicity in games and mechanism design By Marek Pycia; Peter Troyan
  3. Incentive-Compatible Kidney Exchange in a Slightly Semi-Random Model By Avrim Blum; Paul G\"olz
  4. Optimal object assignment mechanisms with imperfect type veri?cation By Francisco Silva; Juan Pereyra
  5. On the price effect of a right-of-first-refusal in farmland auctions By Isenhardt, Lars; Seifert, Stefan; Huettel, Silke
  6. Keeping the Agents in the Dark: Private Disclosures in Competing Mechanisms By Attar, Andrea; Campioni, Eloisa; Mariotti, Thomas; Pavan, Alessandro
  7. Optimal Voting Mechanisms on Generalized Single-Peaked Domains By Tobias Rachidi
  8. On the Foundations of Competitive Search Equilibrium with and without Market Makers By James Albrecht; Xiaoming Cai; Pieter A. Gautier; Susan Vroman

  1. By: Marek Pycia; M. Bumin Yenmez
    Abstract: We incorporate externalities into the stable matching theory of two-sided markets. Extending the classical substitutes condition to markets with externalities, we establish that stable matchings exist when agent choices satisfy substitutability. We show that substitutability is a necessary condition for the existence of a stable matching in a maximal-domain sense and provide a characterization of substitutable choice functions. In addition, we extend the standard insights of matching theory, like the existence of side-optimal stable matchings and the deferred acceptance algorithm, to settings with externalities even though the standard fixed-point techniques do not apply.
    Keywords: Matching, externalities, two-sided matching, matching with contracts, stable matching, labor markets, deferred acceptance, substitutes
    JEL: C78 D47 D50 D62 D86
    Date: 2021–06
  2. By: Marek Pycia; Peter Troyan
    Abstract: We introduce a general class of simplicity standards that vary the foresight abilities required of agents in extensive-form games. Rather than planning for the entire future of a game, agents are presumed to be able to plan only for those histories they view as simple from their current perspective. Agents may update their so-called strategic plan as the game progresses, and, at any point, for the called-for action to be simply dominant, it must lead to unambiguously better outcomes, no matter what occurs at non-simple histories. We use our gradated approach to simplicity to provide characterizations of simple mechanisms. While more demanding simplicity standards may reduce the flexibility of the designer in some cases, this is not always true, and many well-known mechanisms are simple, including ascending auctions, posted prices, and serial dictatorship-style mechanisms. In particular, we explain the widespread popularity of the well-known Random Priority mechanism by characterizing it as the unique mechanism that is efficient, fair, and simple to play.
    Keywords: Simplicity, simple dominance, limited foresight, obvious dominance, strongly obvious dominance, market design, mechanism design, extensive-form games, auctions, allocation
    JEL: C72 C78 D01 D02 D44 D47 D82
    Date: 2021–06
  3. By: Avrim Blum; Paul G\"olz
    Abstract: Motivated by kidney exchange, we study the following mechanism-design problem: On a directed graph (of transplant compatibilities among patient-donor pairs), the mechanism must select a simple path (a chain of transplantations) starting at a distinguished vertex (an altruistic donor) such that the total length of this path is as large as possible (a maximum number of patients receive a kidney). However, the mechanism does not have direct access to the graph. Instead, the vertices are partitioned over multiple players (hospitals), and each player reports a subset of her vertices to the mechanism. In particular, a player may strategically omit vertices to increase how many of her vertices lie on the path returned by the mechanism. Our objective is to find mechanisms that limit incentives for such manipulation while producing long paths. Unfortunately, in worst-case instances, competing with the overall longest path is impossible while incentivizing (approximate) truthfulness, i.e., requiring that hiding nodes cannot increase a player's utility by more than a factor of $1 + o(1)$. We therefore adopt a semi-random model where a small ($o(n)$) number of random edges are added to worst-case instances. While it remains impossible for truthful mechanisms to compete with the overall longest path, we give a truthful mechanism that competes with a weaker but non-trivial benchmark: the length of any path whose subpaths within each player have a minimum average length. In fact, our mechanism satisfies even a stronger notion of truthfulness, which we call matching-time incentive compatibility. This notion of truthfulness requires that each player not only reports her nodes truthfully but also does not stop the returned path at any of her nodes in order to divert it to a continuation inside her own subgraph.
    Date: 2021–06
  4. By: Francisco Silva; Juan Pereyra
    Abstract: There are objects of di?erent quality to be assigned to agents. Agents can be assigned at most one object and there are not enough high quality objects for every agent. The social planner is unable to use transfers to give incentives for agents to convey their private information; instead, she is able to imperfectly verify their reports. We characterize a mechanism that maximizes welfare, where agents face di?erent lotteries over the various objects, depending on their report. We then apply our main result to the case of college admissions. We ?nd that optimal mechanisms are, in general, ex-post ine?cient and do strictly better than the standard mechanisms that are typically studied in the matching literature.
    Date: 2020
  5. By: Isenhardt, Lars; Seifert, Stefan; Huettel, Silke
    Abstract: Current European Union legislation offers public authorities to grant a right of first refusal (RFR) in farmland auctions with public tenders in favour of the current tenant. That is, tenants can purchase the auctioned lot by matching the highest bid. Granting this right secures tenants to buy the land they use; however, it may deter other potential buyers’ auction participation and incentivise bidders to adjust their strategies. A RFR for tenants is thus hypothesised to decrease the number of bidders and lower sales prices. Empirical evidence seems lacking thus far; in this paper, we target at closing this gap by analysing a tenants’ RFR effect on the number of bidders and winning bids in first-price privatization auctions in eastern Germany. Using around 4,000 land auction results in one German Federal State over 2007-2018 by two agencies that differ in granting the RFR to tenants, we combine non-parametric nearest neighbour matching based on the Mahalanobis distance with parametric post-matching regressions. Our results indicate that the RFR reduces competition by an average 8.3% bidders per auction and lowers the prices paid in land auctions by 16.7 %.
    Keywords: Land Economics/Use, Farm Management
    Date: 2021–03
  6. By: Attar, Andrea; Campioni, Eloisa; Mariotti, Thomas; Pavan, Alessandro
    Abstract: We study games in which several principals contract with several privately-informed agents. We show that enabling the principals to engage in contractible private disclosures – by sending private signals to the agents about how the mechanisms will respond to the agents’ messages – can significantly affect the predictions of such games. Our first result shows that private disclosures may generate equilibrium outcomes that cannot be supported in any game without private disclosures, no matter the richness of the message spaces and the availability of public randomizing devices. The result thus challenges the canonicity of the universal mechanisms of Epstein and Peters (1999). Our second result shows that equilibrium outcomes of games without private disclosures need not be sustainable when private disclosures are allowed. The result thus challenges the robustness of the “folk theorems” of Yamashita (2010) and Peters and Troncoso-Valverde (2013). These findings call for a novel approach to the analysis of competing-mechanism games.
    Keywords: Incomplete Information; Competing Mechanisms; Private Disclosures;; Signals; Universal Mechanisms; Folk Theorems
    JEL: D82
    Date: 2021–06
  7. By: Tobias Rachidi
    Abstract: This paper studies the design of voting mechanisms in a setting with more than two alternatives and voters who have generalized single-peaked preferences derived from median spaces as introduced in [Nehring and Puppe, 2007b]. This class of preferences is considerably larger than the well-known class of preferences that are single-peaked on a line. I characterize the voting rules that maximize the ex-ante utilitarian welfare among all social choice functions satisfying strategy-proofness, anonymity, and surjectivity. The optimal mechanism takes the form of voting by properties, that is, the social choice is determined through a collection of binary votes on subsets of alternatives involving qualified majority requirements that reflect the characteristics of these subsets of alternatives. This general optimality result is applied to the design of voting mechanisms for the provision of two costly public goods subject to the constraint that the provided level of one good is weakly higher than the provided level of the other good.
    Keywords: Voting; Generalized Single-Peaked Preferences; Mechanism Design
    JEL: D71 D72 D82
    Date: 2021–06
  8. By: James Albrecht; Xiaoming Cai; Pieter A. Gautier; Susan Vroman
    Abstract: The literature offers two foundations for competitive search equilibrium, a Nash approach and a market-maker approach. When each buyer visits only one seller (or each worker makes only one job application), the two approaches are equivalent. However, when each buyer visits multiple sellers, this equivalence can break down. Our paper analyzes competitive search equilibrium with simultaneous search using the two approaches. We consider four cases defined by (i) the surplus structure (are the goods substitutes or complements?) and (ii) the mechanism space (do sellers post fees or prices?). With fees, the two approaches yield the same constrained efficient equilib-rium. With prices, the equilibrium allocation is the same using both approaches if the goods are complements, but is not constrained efficient. In the case in which only prices are posted and the goods are substitutes, the equilibrium allocations from the two approaches are different.
    Keywords: multiple applications, competitive search, market makers, efficiency
    JEL: C78 D44 D83
    Date: 2021

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