nep-des New Economics Papers
on Economic Design
Issue of 2022‒01‒03
four papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. On the Robustness of Pricing Mechanisms By Han Han Peking; Benoit Julien; Liang Wang
  2. An implementation approach to rotation programs By Ville Korpela; Michele Lombardi; Riccardo D. Saulle
  3. Truthful Cake Sharing By Xiaohui Bei; Xinhang Lu; Warut Suksompong
  4. Optimal Investment and Equilibrium Pricing under Ambiguity By Michail Anthropelos; Paul Schneider

  1. By: Han Han Peking (University School of Economics); Benoit Julien (UNSW Sydney); Liang Wang (University of Hawaii Manoa)
    Abstract: We study the robustness of two well-known and frequently observed multilateral trading protocols, price posting and auction, in small markets. In the context of directed search, sellers choose and commit to an ex-ante trading protocol to attract buyers. When constructing equilibrium, the deviating seller usually chooses the same mechanism as non-deviating sellers. In this paper, however, we allow the deviating seller to bargain with a buyer. In this setup, we find that price posting and auction are not robust mechanisms, because there is always a profitable deviation of bargaining. Then, we introduce a new hybrid multilateral trading protocol, which combines auction and bargaining. We show that when sellers commit to such a mechanism, the equilibrium is robust to deviations of bargaining.
    Keywords: Housing market; Auction; Bargaining; Directed Search; Price Posting
    JEL: D40 D83 E40
    Date: 2021–12
  2. By: Ville Korpela (Turku School of Economics, University of Turku); Michele Lombardi (University of Liverpool Management School, Liverpool, UK; Department of Economics and Statistics, University of Napoli Federico II); Riccardo D. Saulle (Department of Economics and Management, University of Padova)
    Abstract: We study rotation programs within the standard implementation framework under complete information. A rotation program is a myopic stable set whose states are arranged circularly, and agents can effectively move only between two consecutive states. We provide characterizing conditions for the implementation of efficient rules in rotation programs. Moreover, we show that the conditions fully characterize the class of implementable multi-valued and efficient rules.
    Keywords: Rotation Programs, Job Rotation, Assignment Problems, Implementation, rights structures, Stability
    JEL: C71 D71 D82
    Date: 2021–12
  3. By: Xiaohui Bei; Xinhang Lu; Warut Suksompong
    Abstract: The classic cake cutting problem concerns the fair allocation of a heterogeneous resource among interested agents. In this paper, we study a public goods variant of the problem, where instead of competing with one another for the cake, the agents all share the same subset of the cake which must be chosen subject to a length constraint. We focus on the design of truthful and fair mechanisms in the presence of strategic agents who have piecewise uniform utilities over the cake. On the one hand, we show that the leximin solution is truthful and moreover maximizes an egalitarian welfare measure among all truthful and position oblivious mechanisms. On the other hand, we demonstrate that the maximum Nash welfare solution is truthful for two agents but not in general. Our results assume that mechanisms can block each agent from accessing parts that the agent does not claim to desire; we provide an impossibility result when blocking is not allowed.
    Date: 2021–12
  4. By: Michail Anthropelos (University of Piraeus - Department of Banking and Financial Management); Paul Schneider (University of Lugano - Institute of Finance; Swiss Finance Institute)
    Abstract: We consider portfolio selection under nonparametric alpha-maxmin ambiguity in the neighbourhood of a reference distribution. We show strict concavity of the portfolio problem under ambiguity aversion.Implied demand functions are nondifferentiable, resemble observed bid-ask spreads, and are consistent with existing parametric limiting participation results under ambiguity. Ambiguity seekers exhibit a discontinuous demand function, implying an empty set of reservation prices. If agents have identical, or sufficiently similar prior beliefs, the first best equilibrium is no trade. Simple sufficient conditions yield the existence of a Pareto-efficient second-best equilibrium which reconciles many observed phenomena in financial markets, such as liquidity dry-ups, portfolio inertia, and negative risk premia.
    Keywords: ambiguity,equilibrium,asset pricing
    JEL: G11 G12 G41 C62 D84
    Date: 2021–11

This nep-des issue is ©2022 by Guillaume Haeringer and Alex Teytelboym. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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