nep-des New Economics Papers
on Economic Design
Issue of 2022‒02‒21
three papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. An Implementation Approach to Rotation Programs By Ville Korpela; Michele Lombardi; Riccardo Saulle
  2. Compensation and sacrifice in the probabilistic rationing of indivisible units By Ricardo Martínez; Juan D. Moreno-Ternero
  3. Going...going...wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour By Itzhak Rasooly

  1. By: Ville Korpela (Turku School of Economics, University of Turku); Michele Lombardi (University of Liverpool Management School, Liverpool, UK); Riccardo 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: 2022–01
  2. By: Ricardo Martínez (Department of Economics, Universidad de Granada); Juan D. Moreno-Ternero (Department of Economics, Universidad Pablo de Olavide)
    Abstract: We consider the problem of randomly allocating indivisible units of a resource among agents with conflicting claims on the resource. An axiom reflecting a principle of compensation allows us to characterize the focal probabilistic uniform awards rule. A dual axiom reflecting a principle of sacrifice allows us to characterize the (dual) probabilistic uniform losses rule. The combination of two (other) axioms reflecting both principles (of compensation and sacrifice) allows us to characterize the (compromise) probabilistic concede-and-divide in the two-agent case. There is, however, no consistent extension of this rule to the general case of an arbitrary number of agents.
    Keywords: game theory, resource allocation, axioms, probabilistic, discrete goods
    JEL: D63
    Date: 2022
  3. By: Itzhak Rasooly
    Abstract: In this paper, we design and implement an experiment aimed at testing the level-k model of auctions. We begin by asking which (simple) environments can best dis entangle the level-k model from its leading rival, Bayes-Nash equilibrium. We find two environments that are particularly suited to this purpose: an all-pay auction with uniformly distributed values, and a first-price auction with the possibility of cancelled bids. We then implement both of these environments in a virtual laboratory in order to see which theory can best explain observed bidding behaviour. We find that, when plausibly calibrated, the level-k model substantially under-predicts the observed bids and is clearly out-performed by equilibrium. Moreover, attempting to fit the level-k model to the observed data results in implausibly high estimated levels, which in turn bear no relation to the levels inferred from a game known to trigger level-k reasoning. Finally, subjects almost never appeal to iterated reasoning when asked to explain how they bid. Overall, these findings suggest that, despite its notable success in predicting behaviour in other strategic settings, the level-k model (and its close cousin cognitive hierarchy) cannot explain behaviour in auctions.
    Date: 2022–01–05

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