nep-des New Economics Papers
on Economic Design
Issue of 2022‒03‒21
nine papers chosen by
Alex Teytelboym
University of Oxford

  1. Matching with Recall By Yann Bramoullé; Brian W. Rogers; Erdem Yenerdag
  2. Paying to Match: Decentralized Markets with Information Frictions By Marina Agranov; Ahrash Dianat; Larry Samuelson; Leeat Yariv
  3. Top of the Batch: Interviews and the Match By Federico Echenique; Ruy González; Alistair Wilson; Leeat Yariv
  4. An experimental study on strategic preference formation in two-sided matching markets By Natsumi Shimada
  5. Asymptotic non-equivalence of affirmative actions: The top trading cycles mechanism case By Di Feng; Yun Liu
  6. Efficiency with(out) intermediation in repeated bilateral trade By Rohit Lamba
  7. A Solomonic Solution to Ownership Disputes: An Application to Blockchain Front-Running By Joshua S. Gans; Richard T. Holden
  8. Screening Adaptive Cartels By Juan Ortner; Sylvain Chassang; Jun Nakabayashi; Kei Kawai
  9. Primary Dealers and the Demand for Government Debt By Jason Allen; Jakub Kastl; Milena Wittwer

  1. By: Yann Bramoullé (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Brian W. Rogers (Department of Economics, Washington University in St. Louis); Erdem Yenerdag (Department of Economics, Washington University in St. Louis)
    Abstract: We study a two-period one-to-one dynamic matching environment in which agents meet randomly and decide whether to match early or defer. Crucially, agents can match with either partner in the second period. This "recall" captures situations where, e.g., a firm and worker can conduct additional interviews before contracting. Recall has a profound impact on incentives and on aggregate outcomes. We show that the likelihood to match early is nonmonotonic in type: early matches occur between the good-but-not-best agents. The option value provided by the first-period partner provides a force against unraveling, so that deferrals occur under small participation costs.
    Keywords: dynamic matching, unraveling, recall
    JEL: C78 D47 D82 D83
    Date: 2022–03
  2. By: Marina Agranov (California Institute of Technology); Ahrash Dianat (University of Essex); Larry Samuelson (Yale University); Leeat Yariv (Princeton University)
    Abstract: We experimentally study decentralized one-to-one matching markets with transfers. We vary the information available to participants, complete or incomplete, and the surplus structure, supermodular or submodular. Several insights emerge. First, while markets often culminate in efficient matchings, stability is more elusive, reflecting the difficulty of arranging attendant transfers. Second, incomplete information and submodularity present hurdles to efficiency and especially stability, their combination drastically diminishes stability's likelihood. Third, matchings form "from the top down" in complete-information supermodular markets, but exhibit many more and less-obviously ordered offers otherwise. Last, participants' market positions matter far more than their dynamic bargaining styles for outcomes.
    Keywords: matching, incomplete information, stability, experiments
    JEL: C78 D82 D83
    Date: 2021–01
  3. By: Federico Echenique (Caltech); Ruy González (Caltech); Alistair Wilson (University of Pittsburgh); Leeat Yariv (Princeton University)
    Abstract: Most doctors in the NRMP are matched to one of their most-preferred internship programs. Since various surveys indicate similarities across doctors’ preferences, this suggests a puzzle. How can nearly everyone get a position in a highly-desirable program when positions in each program are scarce? We provide one possible explanation for this puzzle. We show that the patterns observed in the NRMP data may be an artifact of the interview process that precedes the match. Our analysis highlights the importance of interactions occurring outside of a matching clearinghouse for resulting outcomes, and casts doubts on analysis of clearinghouses that take reported preferences at face value.
    Keywords: NRMP, Deferred acceptance, Interviews, First-rank matches
    JEL: C78 D47 J44
    Date: 2021–05
  4. By: Natsumi Shimada
    Abstract: We study an experiment of the students-proposing deferred acceptance mechanism (DA) in matching markets where firms are matched with students. We investigated the two different situations: (i) Students know firms’ preferences and firms submit their true preference, (ii) Students know firms’ preferences and firms submit a higher ranking to students who give them higher ranking. This experiment confirms that the matching results under DA influence students’ preference formation, which decreases the degree of stability. If firms do not submit their true preferences, students also do not submit their true preferences. As a result, the situation induces instability. Moreover, we find the new pattern of submitted preferences – compromise strategy. If there is an extreme option, students will tend to prefer the in-between option.
    Date: 2022–03
  5. By: Di Feng; Yun Liu
    Abstract: This note analyzes the asymptotic performance of two popular affirmative action policies, majority quota and minority reserve, under the top trading cycles mechanism (TTCM). These two affirmative actions will induce different matching outcomes with non-negligible probability under the TTCM even if the number of reserved seats for minorities grows relatively slow in large markets.
    Date: 2022–02
  6. By: Rohit Lamba
    Abstract: This paper analyzes repeated version of the bilateral trade model where the independent payoff relevant private information of the buyer and the seller is correlated across time. Using this setup it makes the following five contributions. First, it derives necessary and sufficient conditions on the primitives of the model as to when efficiency can be attained under ex post budget balance and participation constraints. Second, in doing so, it introduces an intermediate notion of budget balance called interim budget balance that allows for the extension of liquidity but with participation constraints for the issuing authority interpreted here as an intermediary. Third, it pins down the class of all possible mechanisms that can implement the efficient allocation with and without an intermediary. Fourth, it provides a foundation for the role of an intermediary in a dynamic mechanism design model under informational constraints. And, fifth, it argues for a careful interpretation of the "folk proposition" that less information is better for efficiency in dynamic mechanisms under ex post budget balance and observability of transfers.
    Date: 2022–02
  7. By: Joshua S. Gans; Richard T. Holden
    Abstract: Blockchain front-running involves multiple agents, other than the legitimate agent, claiming a payment from performing a contract. It arises because of the public nature of blockchain transactions and potential network congestion. This paper notes that disputes over payments are similar to classic ownership disputes (such as King Solomon's dilemma). We propose a simultaneous report mechanism that resolves Solomon's dilemma (using only ordinal preference information) and also eliminates blockchain front-running. In each case, the mechanism relies on threats to remove ownership from all claimants and preferences from the legitimate claimant over allocations to other agents.
    JEL: D82 D86
    Date: 2022–02
  8. By: Juan Ortner (Boston University); Sylvain Chassang (New York University); Jun Nakabayashi (Kindai University); Kei Kawai (U.C. Berkeley)
    Abstract: We propose a theory of equilibrium antitrust oversight in which: (i) regulators launch investigations on the basis of suspicious bidding patters; (ii) cartels can adapt to the statistical screens used by regulators; and may in fact use them to enforce cartel compliance. We emphasize the use of safe tests; i.e. tests that can be passed by competitive players under a broad class of environments. Such tests do not hurt competitive industries and do not help cartels support new collusive equilibria. We show that optimal collusive schemes in plausible environments fail natural safe tests; and that cartel responses to such tests explain unusual patterns in bidding data from procurement auctions held in Japan. This provides evidence that adaptive responses from cartels is a real concern that data-driven antitrust frameworks should take into account.
    Keywords: collusion, auctions, procurement, antitrust
    JEL: D44 D43
    Date: 2020–03
  9. By: Jason Allen (Bank of Canada); Jakub Kastl (Princeton University); Milena Wittwer (Stanford University)
    Abstract: Leveraging the fact that in many primary debt issuance markets securities of varying maturities are sold simultaneously, we recover participants' full demand systems by generalizing methods for estimating individual demands from bidding data. The estimated preference parameters allow us to partition primary dealers into two main classes. For the first class, which largely coincides with the largest money market players, we find significant complementarities in their demand for Treasury bills in primary markets, while for the second class, the patterns in their willingness to pay are mixed and time-varying. We present a dealer-client model that captures the interplay between the primary and secondary market to provide a rationale for our findings. We argue that the complementarity likely arises from the large dealers "making markets," and hence requiring to hold inventory of all securities. Our results are useful both for minimizing the cost of financing of government debt and for optimally implementing financial regulation that is based upon partitioning financial institutions according to their downstream business strategies.
    Keywords: Treasury bills, multi-unit auctions, structural estimation, market segmentation, cross-price elasticities
    JEL: D44 C14 E58 G12
    Date: 2020–07

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