nep-des New Economics Papers
on Economic Design
Issue of 2022‒01‒24
eleven papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Privacy Desiderata in Mechanism Design By Andreas Haupt; Zoe Hitzig
  2. Private Private Information By Kevin He; Fedor Sandomirskiy; Omer Tamuz
  3. An iterative deferred acceptance mechanism for decentralized, fast and fair childcare assignment By Reischmann, Tobias; Klein, Thilo; Giegerich, Sven
  4. Inattention and Inequity in School Matching By Stefan F. Bucher; Andrew Caplin
  5. Cycles to Compute the Full Set of Many-to-many Stable Matchings By Agustín G. Bonifacio; Noelia Juarez; Pablo Neme; Jorge Oviedo
  6. Robust Voting under Uncertainty By Satoshi Nakada; Shmuel Nitzan; Takashi Ui
  7. Nonparametric Treatment Effect Identification in School Choice By Jiafeng Chen
  8. Procurement Auctions for Regulated Retail Service Contracts in Restructured Electricity Markets By Brown, David P.; Eckert, Andrew; Olmstead, Derek E.H.
  9. Invitation in Crowdsourcing Contests By Qi Shi; Dong Hao
  10. Legislative bargaining with private information: A comparison of majority and unanimity rule By Piazolo, David; Vanberg, Christoph
  11. Corrupted Votes and Rule Compliance By Arno Apffelstaedt; Jana Freundt

  1. By: Andreas Haupt; Zoe Hitzig
    Abstract: In a direct mechanism, a communication protocol queries agents' private information in order to determine the outcome. Protocols make a distinction between the information solicited by the mechanism designer and the information revealed to the designer, and thus allow for the formulation of privacy desiderata in mechanism design. One such desideratum is need-to-know privacy, which formalizes a notion of data minimization. A protocol is need-to-know private if every piece of an agent's private information that is revealed to the designer is needed to determine their outcome. A social choice rule is need-to-know implementable if there is a need-to-know protocol that implements it. Need-to-know implementability depends on the commitment power of the designer. When the designer can commit to arbitrary (cryptographic) protocols, any non-bossy social choice rule is need-to-now implementable. When the designer can only commit to personalized queries that correspond to messages sent in an extensive-form game, random serial dictatorship is the unique need-to-know and efficient object assignment rule, and the first price auction is the unique need-to-know and efficient standard auction. When the designer can commit to making some anonymous queries, the second-price auction becomes need-to-know implementable.
    Date: 2021–12
  2. By: Kevin He; Fedor Sandomirskiy; Omer Tamuz
    Abstract: In a private private information structure, agents' signals contain no information about the signals of their peers. We study how informative such structures can be, and characterize those that are on the Pareto frontier, in the sense that it is impossible to give more information to any agent without violating privacy. In our main application, we show how to optimally disclose information about an unknown state under the constraint of not revealing anything about a correlated variable that contains sensitive information.
    Date: 2021–12
  3. By: Reischmann, Tobias; Klein, Thilo; Giegerich, Sven
    Abstract: We design and implement an iterative, program-proposing deferred acceptance mechanism with ties (IDAT) and apply it to childcare assignment in two German cities. The mechanism can accommodate complementarities in providers' preferences, is fast to terminate even in larger cities, is difficult to manipulate in practice, and produces stable allocations. It can be further sped up by introducing two new features. First, allowing for an arbitrary share of facilities who participate in a centralized manner by submitting a rank-order-list over applicants. Second, by breaking ties in applicants' rank-order-lists on a first-come-first-serve basis, which sets incentives for programs to propose faster.
    Keywords: Childcare assignment,deferred acceptance algorithm
    JEL: C78 D02 D47 D82 I24
    Date: 2021
  4. By: Stefan F. Bucher; Andrew Caplin
    Abstract: The attractive properties of the Deferred Acceptance (DA) algorithm rest on the assumption of perfect information. Yet field studies of school matching show that information is imperfect, particularly for disadvantaged students. We model costly strategic learning when schools are ex ante symmetric, agree on their ranking of students, and learning is rationally inattentive. Our analytic solution quantifies how each student’s rank, learning costs and prior beliefs interact to determine their gross and net welfare as well as the extent and form of mistakes they make. In line with the evidence, we find that lower-ranked students are affected disproportionately more by information costs, generally suffering a larger welfare loss than higher-ranked students. Interactions between mechanism design, inattention and inequity are thus of first order importance.
    JEL: C78 D47 D82 D83
    Date: 2021–12
  5. By: Agustín G. Bonifacio (Universidad Nacional de San Luis/CONICET); Noelia Juarez (Universidad Nacional de San Luis/CONICET); Pablo Neme (Universidad Nacional de San Luis/CONICET); Jorge Oviedo (Universidad Nacional de San Luis/CONICET)
    Abstract: In a many-to-many matching model in which agents’ preferences satisfy substitutability and the law of aggregate demand, we present an algorithm to compute the full set of stable matchings. This algorithm relies on the idea of “cycles in preferences” and generalizes the algorithm presented in Roth and Sotomayor (1990) for the one-to-one model.
    Keywords: Stable matchings, cyclic matching, substitutable preferences
    JEL: C78 D47
    Date: 2021–12
  6. By: Satoshi Nakada (School of Management, Department of Business Economics, Tokyo University of Science); Shmuel Nitzan (Department of Economics, Bar-Ilan University); Takashi Ui (Department of Economics, Hitotsubashi University)
    Abstract: This paper proposes normative criteria for voting rules under uncertainty about individual preferences to characterize a weighted majority rule (WMR). The criteria stress the significance of responsiveness, i.e., the probability that the social outcome coincides with the realized individual preferences. A voting rule is said to be robust if, for any probability distribution of preferences, the responsiveness of at least one individual is greater than one-half. This condition is equivalent to the seemingly stronger condition requiring that, for any probability distribution of preferences and any deterministic voting rule, the responsiveness of at least one individual is greater than that under the deterministic voting rule. Our main result establishes that a voting rule is robust if and only if it is a WMR without ties. This characterization of a WMR avoiding the worst possible outcomes provides a new complement to the well-known characterization of a WMR achieving the optimal outcomes, i.e., efficiency in the set of all random voting rules.
    Keywords: majority rule, weighted majority rule, responsiveness, belief-free criterion.
    JEL: D71 D81
  7. By: Jiafeng Chen
    Abstract: We study identification and estimation of treatment effects in common school choice settings, under unrestricted heterogeneity in individual potential outcomes. We propose two notions of identification, corresponding to design- and sampling-based uncertainty, respectively. We characterize the set of causal estimands that are identified for a large variety of school choice mechanisms, including ones that feature both random and non-random tie-breaking; we discuss their policy implications. We also study the asymptotic behavior of nonparametric estimators for these causal estimands. Lastly, we connect our approach to the propensity score approach proposed in Abdulkadiroglu, Angrist, Narita, and Pathak (2017a, forthcoming), and derive the implicit estimands of the latter approach, under fully heterogeneous treatment effects.
    Date: 2021–12
  8. By: Brown, David P. (University of Alberta, Department of Economics); Eckert, Andrew (University of Alberta, Department of Economics); Olmstead, Derek E.H. (University of Calgary)
    Abstract: A challenge in setting regulated rates for default retail electricity products is the presence of both price and quantity risk faced by retailers. To address this challenge, regulators have been increasingly employing competition via full-load (load following) auctions to value these risks. In a full-load auction, firms bid to supply a fixed percentage of the regulated utility's hourly demand at a fixed price. In this paper, we develop a model of break-even pricing of electricity forward products under risk aversion, based on a mean-variance utility function. We use this model to evaluate the performance of full-load auctions in Alberta, where the largest regulated retail provider adopted such auctions in December 2018. We find that winning full-load bids exceed break-even levels, even allowing for risk-aversion, but that the difference falls over time. This reduction coincides with an increase in the number of bidders active in the full-load auctions. Our paper highlights the importance of sufficient participation for the success of full-load auctions and the potential role for competitive markets in determining the value of risk faced by retailers.
    Keywords: Electricity; Forward Contracts; Regulation; Procurement Auctions
    JEL: L51 L94 Q48
    Date: 2021–12–31
  9. By: Qi Shi; Dong Hao
    Abstract: In a crowdsourcing contest, a requester holding a task posts it to a crowd. People in the crowd then compete with each other to win the rewards. Although in real life, a crowd is usually networked and people influence each other via social ties, existing crowdsourcing contest theories do not aim to answer how interpersonal relationships influence peoples' incentives and behaviors, and thereby affect the crowdsourcing performance. In this work, we novelly take peoples' social ties as a key factor in the modeling and designing of agents' incentives for crowdsourcing contests. We then establish a new contest mechanism by which the requester can impel agents to invite their neighbours to contribute to the task. The mechanism has a simple rule and is very easy for agents to play. According to our equilibrium analysis, in the Bayesian Nash equilibrium agents' behaviors show a vast diversity, capturing that besides the intrinsic ability, the social ties among agents also play a central role for decision-making. After that, we design an effective algorithm to automatically compute the Bayesian Nash equilibrium of the invitation crowdsourcing contest and further adapt it to large graphs. Both theoretical and empirical results show that, the invitation crowdsourcing contest can substantially enlarge the number of contributors, whereby the requester can obtain significantly better solutions without a large advertisement expenditure.
    Date: 2021–12
  10. By: Piazolo, David; Vanberg, Christoph
    Abstract: We present a three-person, two-period bargaining game with private information. A single proposer is seeking to secure agreement to a proposal under either majority or unanimity rule. Two responders have privately known "breakdown values" which determine their payoff in case of "breakdown". Breakdown occurs with some probability if the first proposal fails and with certainty if the second proposal fails. We characterize Bayesian Equilibria in Sequentially Weakly Undominated Strategies. Our central result is that responders have a signaling incentive to vote "no" on the first proposal under unanimity rule, whereas no such incentive exists under majority rule. The reason is that being perceived as a "high breakdown value type" is advantageous under unanimity rule, but disadvantageous under majority rule. As a consequence, responders are "more expensive" under unanimity rule and disagreement is more likely. These results confirm intuitions that have been stated informally before and in addition yield deeper insights into the underlying incentives and what they imply for optimal behavior in bargaining with private information.
    Date: 2022–01–13
  11. By: Arno Apffelstaedt (University of Cologne and ECONtribute); Jana Freundt (University of Fribourg, Department of Economics and University of Pennsylvania, School of Arts and Sciences)
    Abstract: Allegations of voter fraud accompany many real-world elections. How does electoral malpractice affect the acceptance of elected institutions? Using an online experiment in which people distribute income according to majority-elected rules, we show that those who experience vote buying or voter disenfranchisement during the election are subsequently less willing to comply with the rule. On average, the detrimental impact of electoral malpractice on compliance is of the same magnitude as removing the election altogether and imposing a rule exogenously. Our experiment shows how corrupting democratic processes can impact economic behavior and sheds light on the behavioral mechanisms underlying "rule legitimacy".
    Keywords: rule compliance, endogenous institutions, corruption, procedural fairness, legitimacy
    JEL: D02 D72 D91 C92
    Date: 2022–01

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