nep-des New Economics Papers
on Economic Design
Issue of 2021‒12‒06
six papers chosen by
Alex Teytelboym
University of Oxford

  1. Auction Design with Approximate Common Prior By Pham, Hien; Yamashita, Takuro
  2. Equilibrium Existence and Expected Payoffs in All-Pay Auctions with Constraints By Tuvana Pastine; Ivan Pastine
  3. Maximal Domains for Strategy-Proof Pairwise Exchange By Carmelo Rodríguez-Álvarez
  4. Buyer’s Optimism, Information Design, and Price Discrimination By Pham, Hien
  5. Surplus Extraction with Behavioral Types By Nicolas Pastrian
  6. First Best Implementation with Costly Information Acquisition By Larionov, Daniil; Pham, Hien; Yamashita, Takuro

  1. By: Pham, Hien; Yamashita, Takuro
    Abstract: We consider an auction design problem with private values which are dis-tributed in a possibly correlated way. Both the seller and bidders do not know the true distribution, but (perhaps based on the data about past auctions), each of them has some “benchmark” distribution in mind. They face “local” uncertainty in the sense that their benchmark distributions are “ε-close” to each other and to the true distribution, and this itself is common knowledge. We show that, no matter how small (but positive) is ε (i.e., except for an ex-act common prior case), the worst-case-minded seller finds it optimal to offer a dominant-strategy mechanism. With an appropriate transfer reduction, we show that, as ε vanishes, the seller’s expected revenue converges to the ex-pected revenue in the optimal dominant-strategy mechanism with ε = 0 (i.e., with an exact common prior), but not to the expected revenue in the optimal Bayesian mechanism with ε = 0.
    Date: 2021–11
  2. By: Tuvana Pastine (Department of Economics, Maynooth University.); Ivan Pastine (University College Dublin)
    Abstract: This paper introduces constraints on player choices in a broad class of all-pay auctions by allowing for upper bounds on players’ strategy sets. It proves the existence of equilibrium and derives simple closed-form formulae for players’ expected payoffs in any equilibrium. These formulae are straightforward to calculate in applications and do not require the derivation of the equilibrium or equilibria. This may be useful because: (i) In some applications players’ expected payoffs are the main item of interest. For example, one may be concerned about the effect of a policy on the market participants. In these cases the results can be used directly, bypassing the need for the full derivation of the equilibrium. (ii) In all-pay auctions, equilibrium is typically in mixed strategies. So in applications where the full characterization of the equilibrium is of interest, finding the players’ expected payoffs is a crucial first step in the derivation of the equilibrium.
    Date: 2021
  3. By: Carmelo Rodríguez-Álvarez (Universidad Complutense de Madrid and ICAE (Spain).)
    Abstract: We analyze centralized non-monetary markets for indivisible objects through pairwise exchange when each agent initially owns a single object. We characterize a family of do- mains of preferences (minimal reversal domains) such that there exist pairwise exchange rules that satisfy individual rationality, efficiency, and strategy-proofness. Minimal reversal domains are maximal rich domains for individual rationality, efficiency, and strategy- proofness. Each minimal reversal domain is defined by a common ranking of the set of objects, and agents’ preferences over admissible objects coincide with such common rank- ing but for a specific pair of objects.
    Keywords: Pairwise Exchange; Individual Rationality; Constrained Efficiency; Strategy-Proofness; Maximal Domain.
    JEL: C71 C78 D71 D78
    Date: 2021–11
  4. By: Pham, Hien
    Abstract: A seller (she) faces a single buyer (he) who holds a biased and private prior belief regarding whether the product fits his need (which brings him a higher payoff than otherwise). The seller can provide additional information about the product that helps the buyer privately refine his belief. We fully characterize the revenue-maximizing menu of prices and disclosure policies that follows a simple cutoff structure. While the diversity in the priors alone is not sufficient to trigger price discrimi-nation, the presence of information design induces the optimal mech-anism featuring both information and price discrimination. Further-more, the seller does not strictly benefit from charging upfront pay-ments for information.
    Date: 2021–11
  5. By: Nicolas Pastrian
    Abstract: We examine the surplus extraction problem in a mechanism design setting with behavioral types. In our model behavioral types always perfectly reveal their private information. We characterize the sufficient conditions that guarantee full extraction in a finite version of the reduced form environment of McAfee and Reny (1992). We found that the standard convex independence condition identified in Cremer and McLean (1988) is required only among the beliefs of strategic types, while a weaker condition is required for the beliefs of behavioral types.
    Date: 2021–10
  6. By: Larionov, Daniil; Pham, Hien; Yamashita, Takuro
    Abstract: We study a mechanism design model with flexible but costly information acquisition. There is a principal and I ≥ 4 agents. The principal and the agents share a common prior over the set of payoff-relevant states of the world. The principal proposes a mechanism to the agents who can then acquire information about the state of the world by privately designing a signal device. As long as it is costless for each agent to acquire a signal that is pairwise independent from the state of the world, we show that there exists a mecha-nism which allows the principal to implement any social choice rule at zero information acquisition cost to the agents.
    Date: 2021–11

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