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on Economic Design |
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Issue of 2021‒08‒16
five papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Leandro Arozamena; Juan-José Ganuza; Federico Weinschelbaum |
| Abstract: | In order to make competition open, fair and transparent, procurement regulations often require equal treatment for all bidders. This paper shows how a favorite supplier can be treated preferentially (opening the door to home bias and corruption) even when explicit discrimination is not allowed. We analyze a procurement setting in which the optimal design of the project to be contracted is unknown. The sponsor has to invest in specifying the project. The larger the investment, the higher the probability that the initial design is optimal. When it is not, a bargaining process between the winning firm and the sponsor takes place. Profits from bargaining are larger for the favorite supplier than for its rivals. Given this comparative advantage, the favored firm bids more aggressively and then, it wins more often than standard firms. Finally, we show that the sponsor invests less in specifying the initial design, when favoritism is stronger. Underinvestment in design specification is a tool for providing a comparative advantage to the favored firm. |
| Keywords: | auctions, favoritism, auction design, renegotiation, corruption |
| JEL: | C72 D44 D82 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1275&r= |
| 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 superior awareness of the set of actions that are actually feasible. 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 increases the principal's willingness to grant him higher information rents. We further show that the principal may use the option of renegotiation as a tool to implement actions that are not describable to her at the contracting stage. If the agent renegotiates, his proposal signals information about the payoff state. We demonstrate that limited awareness of actions improves communication in such 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: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2021_256v2&r= |
| By: | Heller, Yuval; Kuzmics, Christoph |
| Abstract: | An equilibrium is communication-proof if it is unaffected by new opportunities to communicate and renegotiate. We characterize the set of equilibria of coordination games with pre-play communication in which players have private preferences over the feasible coordinated outcomes. Communication-proof equilibria provide a narrow selection from the large set of qualitatively diverse Bayesian Nash equilibria in such games. Under a communication-proof equilibrium, players never miscoordinate, play their jointly preferred outcome whenever there is one, and communicate only the ordinal part of their preferences. Moreover, such equilibria are robust to changes in players' beliefs, interim Pareto efficient, and evolutionarily stable. |
| Keywords: | cheaptalk, communication-proofness, renegotiation-proofness, secrethandshake, incomplete information, evolutionary robustness |
| JEL: | C72 C73 D82 |
| Date: | 2020–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:102926&r= |
| By: | David Pérez-Castrillo; Chaoran Sun |
| Abstract: | We define the proportional ordinal Shapley (the POSh) solution, an ordinal concept for pure exchange economies in the spirit of the Shapley value. Our construction is inspired by Hart and Mas-Colell's (1989) characterization of the Shapley value with the aid of a potential function. The POSh exists and is unique and essentially single-valued for a fairly general class of economies. It satisfies individual rationality, anonymity, and properties similar to the null-player and null-player out properties in transferable utility games. Moreover, the POSh is immune to agents' manipulation of their initial endowments: It is not D-manipulable and does not suffer from the transfer paradox. Finally, we construct a bidding mechanism à la Pérez-Castrillo and Wettstein (2001) that implements the POSh in subgame perfect Nash equilibrium for economies where agents have homothetic preferences and positive endowments. |
| Keywords: | shapley value, exchange economy, ordinal solution, potential, Implementation |
| JEL: | D63 D50 C72 |
| Date: | 2021–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1274&r= |
| By: | Wesley H. Holliday; Eric Pacuit |
| Abstract: | In this paper, we propose a new single-winner voting system using ranked ballots: Stable Voting. The motivating principle of Stable Voting is that if a candidate A would win without another candidate B in the election, and A beats B in a head-to-head majority comparison, then A should still win in the election with B included (unless there is another candidate A' who has the same kind of claim to winning, in which case a tiebreaker may choose between A and A'). We call this principle Stability for Winners (with Tiebreaking). Stable Voting satisfies this principle while also having a remarkable ability to avoid tied outcomes in elections even with small numbers of voters. |
| Date: | 2021–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2108.00542&r= |