nep-des New Economics Papers
on Economic Design
Issue of 2021‒09‒13
eight papers chosen by
Alex Teytelboym
University of Oxford

  1. Unidirectional substitutes and complements By Chao Huang
  2. Optimal Trade Mechanisms with Adverse Selection and Inferential Mistakes By Takeshi Murooka; Takuro Yamashita
  3. Costly Multidimensional Screening By Frank Yang
  4. Efficient Bilateral Trade via Two-Stage Mechanisms under One- Sided Asymmetric Information By Kunimoto, Takashi; Zhang, Cuiling
  5. Designing a Competitive Monotone Signaling Equilibrium By Seungjin Han; Alex Sam; Youngki Shin
  6. Auctions and Prediction Markets for Scientific Peer Review By Siddarth Srinivasan; Jamie Morgenstern
  7. Winning coalitions in plurality voting democracies By René van den Brink; Dinko Dimitrov; Agnieszka Rusinowska
  8. Voting for compromises: alternative voting methods in polarized societies By Carlos Alós-Ferrer; Johannes Buckenmaier

  1. By: Chao Huang
    Abstract: In discrete matching markets, substitutes and complements can be unidirectional between two groups of workers when members of one group are more important or competent than those of the other group for firms. We show that a stable matching exists and can be found by a two-stage Deferred Acceptance mechanism when firms' preferences satisfy a unidirectional substitutes and complements condition. This result applies to both firm-worker matching and controlled school choice. Under the framework of matching with continuous monetary transfers and quasi-linear utilities, we show that substitutes and complements are bidirectional for a pair of workers.
    Date: 2021–08
  2. By: Takeshi Murooka (Osaka School of International Public Policy (OSIPP), Osaka University); Takuro Yamashita (Toulouse School of Economics, University of Toulouse)
    Abstract: We study an adverse selection environment, where a rational seller can trade a good of which she privately knows its value to a buyer, and there are gains from trade. The buyer's types differ in their degree of inferential abilities: A rational type correctly infers the value of the good from the seller's offer, whereas a naive type under-appreciates the correlation between the seller's private information and offer. We characterize the optimal menu mechanism that maximizes the social surplus. Notably, no matter how severe the adverse selection is (in particular, even when no trade is the unique possible outcome if all agents are rational), all types of buyers trade in the optimal mechanism. The rational buyer's trade occurs at the expense of the naive buyer's losses. We also investigate a consumer-protection policy of limiting the losses and discuss its implications.
    Keywords: adverse selection, inferential naivety, mechanism design, behavioral contract theory, consumer protection
    JEL: D82 D86 D90 D91
    Date: 2021–09
  3. By: Frank Yang
    Abstract: A screening instrument is costly if it is socially wasteful and productive otherwise. A principal screens an agent with multidimensional private information and quasilinear preferences that are additively separable across two components: a one-dimensional productive component and a multidimensional costly component. Can the principal improve upon simple one-dimensional mechanisms by also using the costly instruments? We show that if the agent has preferences between the two components that are positively correlated in a suitably defined sense, then simply screening the productive component is optimal. The result holds for general type and allocation spaces, and allows for nonlinear and interdependent valuations. We discuss applications to optimal regulation, labor market screening, and monopoly pricing.
    Date: 2021–09
  4. By: Kunimoto, Takashi (School of Economics, Singapore Management University); Zhang, Cuiling (The Institute for Advanced Economic Research, Dongbei University of Finance and Eco- nomics)
    Abstract: This paper considers a bilateral-trade model with one-sided asymmetric information in which one agent (seller) initially owns an indivisible object and is fully informed of its value, while the other agent (buyer) intends to obtain the object whose value is unknown to himself. As Jehiel and Pauzner (2006) show that no mechanisms can generally result in efficient, voluntary bilateral trades, we aim to overturn this impossibility result by employing two-stage mechanisms (Mezzetti (2004)) in which first, the outcome (e.g., allocation of the goods) is determined, then the agents observe their own outcome-decision payoffs, and finally, transfers are made. We show that the generalized two-stage Groves mechanism induces efficient, voluntary bilateral trades. On the contrary, we also show by means of an example that the generalized two-stage Groves mechanism fails to achieve efficient, voluntary trades in a two-sided asymmetric information setup in which both parties have private information and each party’s valuation depends on the other’s information in the same way.
    Keywords: bilateral trades; one-sided asymmetric information; two-stage mechanisms
    JEL: C72 D78 D82
    Date: 2021–08–01
  5. By: Seungjin Han; Alex Sam; Youngki Shin
    Abstract: A decision maker (DM) determines a set of reactions that receivers can choose before senders and receivers move in a generalized competitive signaling model with two-sided matching. The DM’s optimal design of the unique stronger monotone signaling equilibrium (unique D1 equilibrium) is equivalent to the choice problem of two threshold sender types, one for market entry and the other for pooling on the top. Our analysis sheds light on the impacts of a trade-off between matching efficiency and signaling costs, the relative heterogeneity of receiver types to sender types, and the productivity of the sender’s action on optimal equilibrium designing.
    Keywords: optimal equilibrium design; monotone signaling equilibrium; stronger monotone belief; Criterion D1
    JEL: D82 D86
    Date: 2021–09
  6. By: Siddarth Srinivasan; Jamie Morgenstern
    Abstract: Peer reviewed publications are considered the gold standard in certifying and disseminating ideas that a research community considers valuable. However, we identify two major drawbacks of the current system: (1) the overwhelming demand for reviewers due to a large volume of submissions, and (2) the lack of incentives for reviewers to participate and expend the necessary effort to provide high-quality reviews. In this work, we adopt a mechanism-design approach to propose improvements to the peer review process. We present a two-stage mechanism which ties together the paper submission and review process, simultaneously incentivizing high-quality reviews and high-quality submissions. In the first stage, authors participate in a VCG auction for review slots by submitting their papers along with a bid that represents their expected value for having their paper reviewed. For the second stage, we propose a novel prediction market-style mechanism (H-DIPP) building on recent work in the information elicitation literature, which incentivizes participating reviewers to provide honest and effortful reviews. The revenue raised by the Stage I auction is used in Stage II to pay reviewers based on the quality of their reviews.
    Date: 2021–08
  7. By: René van den Brink (VU University Amsterdam); Dinko Dimitrov (Saarland University [Saarbrücken]); Agnieszka Rusinowska (CNRS - Centre National de la Recherche Scientifique, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, 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)
    Abstract: We consider plurality voting games being simple games in partition function form such that in every partition there is at least one winning coalition. Such a game is said to be weighted if it is possible to assign weights to the players in such a way that a winning coalition in a partition is always one for which the sum of the weights of its members is maximal over all coalitions in the partition. A plurality game is called decisive if in every partition there is exactly one winning coalition. We show that in general, plurality games need not be weighted, even not when they are decisive. After that, we prove that (i) decisive plurality games with at most four players, (ii) majority games with an arbitrary number of players, and (iii) decisive plurality games that exhibit some kind of symmetry, are weighted. Complete characterizations of the winning coalitions in the corresponding partitions are provided as well.
    Date: 2021–04
  8. By: Carlos Alós-Ferrer; Johannes Buckenmaier
    Abstract: Democratic societies have been increasingly confronted with extreme, knife-edge election outcomes that affect everybody’s lives and contribute to social instability. Even if political compromises based on social conventions as equity or economic arguments as efficiency are available, polarized societies might fail to select them. We demonstrate that part of the problem might be purely technical and, hence, potentially solvable. We study different voting methods in three experiments (total N = 5, 820), including small, medium-sized, and large electorates, and find that currently-used methods (Plurality Voting and Rank-Order systems) can lead voters to overwhelmingly support egoistic options. In contrast, alternative, more nuanced methods (Approval Voting and Borda Count) reduce the support for egoistic options and favor equity and efficiency, avoiding extreme outcomes. Those methods differ in whether they favor equity or efficiency when the latter benefits a majority. Our evidence suggests that targeted changes in the electoral system could favor socially-desirable compromises and increase social stability.
    Keywords: Polarization, social compromises, equity, efficiency, voting methods
    JEL: C91 C92 D63 D70 D71
    Date: 2021–07

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