nep-des New Economics Papers
on Economic Design
Issue of 2022‒02‒14
two papers chosen by
Alex Teytelboym
University of Oxford

  1. School Choice with Consent: An Experiment By Claudia Cerrone; Yoan Hermstrüwer; Onur Kesten
  2. StableSims: Optimizing MakerDAO Liquidations 2.0 Incentives via Agent-Based Modeling By Andrew Kirillov; Sehyun Chung

  1. By: Claudia Cerrone (Middlesex University); Yoan Hermstrüwer (Max Planck Institute for Research on Collective Goods, Bonn); Onur Kesten (School of Economics, The University of Sydney)
    Abstract: Public school choice often yields student placements that are neither fair nor efficient. Kesten (2010) proposed an efficiency-adjusted deferred acceptance algorithm (EADAM) that allows students to consent to waive priorities that have no effect on their assignment. In this article, we provide first experimental evidence on the performance of EADAM. We compare EADAM with the deferred acceptance mechanism (DA) and with two variants of EADAM. In the first variant, we vary the default option: students can object – rather than consent – to the priority waiver. In the second variant, the priority waiver is enforced. We find that both efficiency and truth-telling rates are substantially higher under EADAM than under DA, even though EADAM is not strategy-proof. When the priority waiver is enforced, we observe that efficiency further increases, while truth-telling rates decrease relative to the EADAM variants where students can dodge the waiver. Our results challenge the importance of strategy-proofness as a condition of truth-telling and point to a trade-off between efficiency and vulnerability to preference manipulation.
    Keywords: efficiency-adjusted deferred acceptance algorithm, school choice, consent, default rules, law
    JEL: C78 C92 D47 I20 K10
    Date: 2022–02–09
  2. By: Andrew Kirillov; Sehyun Chung
    Abstract: The StableSims project set out to determine optimal parameters for the new auction mechanism, Liquidations 2.0, used by MakerDAO, a protocol built on Ethereum offering a decentralized, collateralized stablecoin called Dai. We developed an agent-based simulation that emulates both the Maker protocol smart contract logic, and how profit-motivated agents ("keepers") will act in the real world when faced with decisions such as liquidating "vaults" (collateralized debt positions) and bidding on collateral auctions. This research focuses on the incentive structure introduced in Liquidations 2.0, which implements both a constant fee (tip) and a fee proportional to vault size (chip) paid to keepers that liquidate vaults or restart stale collateral auctions. We sought to minimize the amount paid in incentives while maximizing the speed with which undercollateralized vaults were liquidated. Our findings indicate that it is more cost-effective to increase the constant fee, as opposed to the proportional fee, in order to decrease the time it takes for keepers to liquidate vaults.
    Date: 2022–01

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