nep-des New Economics Papers
on Economic Design
Issue of 2022‒01‒31
eight papers chosen by
Alex Teytelboym
University of Oxford

  1. From Immediate Acceptance to Deferred Acceptance: Effects on School Admissions and Achievement in England By Camille Terrier; Parag A. Pathak; Kevin Ren
  2. School Choice and Loss Aversion By Vincent Meisner; Jonas von Wangenheim
  3. On the Equivalence of Two Competing Affirmative Actions in School Choice By Yun Liu
  4. An Implementation Approach to Rotation Programs By Korpela, Ville; Lombardi, Michele; Saulle, Riccardo
  5. Robust Implementation with Costly Information By Harry Pei; Bruno Strulovici
  6. Safe Equilibrium By Sam Ganzfried
  7. On the Fair Division of a Random Object By Anna Bogomolnaia; Hervé Moulin; Fedor Sandomirskiy
  8. Mechanism Design with Informational Punishment By Benjamin Balzer; Johannes Schneider

  1. By: Camille Terrier; Parag A. Pathak; Kevin Ren
    Abstract: Countries and cities around the world increasingly rely on centralized systems to assign students to schools. Two algorithms, deferred acceptance (DA) and immediate acceptance (IA), are widespread. The latter is often criticized for harming disadvantaged families who fail to get access to popular schools. This paper investigates the effect of the national ban of the IA mechanism in England in 2008. Before the ban, 49 English local authorities used DA and 16 used IA. All IA local authorities switched to DA afterwards, giving rise to a cross-market difference-in-differences research design. Our results show that the elimination of IA reduces measures of school quality for low-SES students more than high-SES students. After the ban, low-SES students attend schools with lower value-added and more disadvantaged and low-achieving peers. This effect is primarily driven by a decrease in low-SES admissions at selective schools. Our findings point to an unintended consequence of the IA to DA transition: by encouraging high-SES parents to report their preferences truthfully, DA increases competition for top schools, which crowds out low-SES students.
    JEL: D47 I20
    Date: 2021–12
  2. By: Vincent Meisner; Jonas von Wangenheim
    Abstract: Evidence suggests that participants in direct student-proposing deferred-acceptance mechanisms (DA) play dominated strategies. To explain the data, we introduce expectation-based loss aversion into a school-choice setting and characterize choice-acclimating personal equilibria in DA. We find that non-truthful preference submissions can be strictly optimal if and only if they are top-choice monotone. In equilibrium, DA may implement allocations with justified envy. Specifically, it discriminates against students who are more loss averse or less confident than their peers, and amplifies already existing discrimination. To level the playing field, we propose sequential mechanisms as alternatives that are robust to these biases.
    Keywords: market design, matching, school choice, reference-dependent preferences, loss aversion, deferred acceptance
    JEL: C78 D47 D78 D81 D82 D91
    Date: 2021
  3. By: Yun Liu
    Abstract: This note analyzes the outcome equivalence conditions of two popular affirmative action policies, majority quota and minority reserve, under the student optimal stable mechanism. The two affirmative actions generate an identical matching outcome, if the market either is effectively competitive or contains a sufficiently large number of schools.
    Date: 2021–12
  4. By: Korpela, Ville; Lombardi, Michele; Saulle, Riccardo
    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: C7 D02 D04 D47
    Date: 2021–12–16
  5. By: Harry Pei; Bruno Strulovici
    Abstract: We study whether a planner can robustly implement a state-contingent social choice function when (i) agents must incur a cost to learn the state and (ii) the planner faces uncertainty regarding agents' preferences over outcomes, information costs, and beliefs and higher-order beliefs about one another's payoffs. We propose mechanisms that can approximately implement any desired social choice function when the perturbations concerning agents' payoffs have small ex ante probability. The mechanism is also robust to trembles in agents' strategies and when agents receive noisy information about the state.
    Date: 2021–12
  6. By: Sam Ganzfried
    Abstract: The standard game-theoretic solution concept, Nash equilibrium, assumes that all players behave rationally. If we follow a Nash equilibrium and opponents are irrational (or follow strategies from a different Nash equilibrium), then we may obtain an extremely low payoff. On the other hand, a maximin strategy assumes that all opposing agents are playing to minimize our payoff (even if it is not in their best interest), and ensures the maximal possible worst-case payoff, but results in exceedingly conservative play. We propose a new solution concept called safe equilibrium that models opponents as behaving rationally with a specified probability and behaving potentially arbitrarily with the remaining probability. We prove that a safe equilibrium exists in all strategic-form games (for all possible values of the rationality parameters), and prove that its computation is PPAD-hard. We present exact algorithms for computing a safe equilibrium in both 2 and $n$-player games, as well as scalable approximation algorithms.
    Date: 2022–01
  7. By: Anna Bogomolnaia (HSE St Petersburg - Higher School of Economics - St Petersburg, University of Glasgow, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Hervé Moulin (University of Glasgow); Fedor Sandomirskiy (HSE St Petersburg - Higher School of Economics - St Petersburg)
    Abstract: Ann likes oranges much more than apples; Bob likes apples much more than oranges. Tomorrow they will receive one fruit that will be an orange or an apple with equal probability. Giving one half to each agent is fair for each realization of the fruit. However, agreeing that whatever fruit appears will go to the agent who likes it more gives a higher expected utility to each agent and is fair in the average sense: in expectation, each agent prefers the allocation to the equal division of the fruit; that is, the agent gets a fair share. We turn this familiar observation into an economic design problem: upon drawing a random object (the fruit), we learn the realized utility of each agent and can compare it to the mean of the agent's distribution of utilities; no other statistical information about the distribution is available. We fully characterize the division rules using only this sparse information in the most efficient possible way while giving everyone a fair share. Although the probability distribution of individual utilities is arbitrary and mostly unknown to the manager, these rules perform in the same range as the best rule when the manager has full access to this distribution. This paper was accepted by Ilia Tsetlin, behavioral economics and decision analysis.
    Date: 2021–03–23
  8. By: Benjamin Balzer; Johannes Schneider
    Abstract: We introduce informational punishment to the design of mechanisms that compete with an exogenous status quo: A signal designer can publicly communicate with all players even if some decide not to communicate with the designer. Optimal informational punishment ensures that full participation in the mechanism is optimal even if any single player can publicly enforce the status-quo mechanism. Informational punishment restores the revelation principle, is independent of the mechanism designer's objective, and operates exclusively off the equilibrium path. Informational punishment is robust to refinements and applies in informed-principal settings. We provide conditions that make it robust to opportunistic signal designers.
    Date: 2022–01

This nep-des issue is ©2022 by 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.