nep-des New Economics Papers
on Economic Design
Issue of 2022‒04‒18
five papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. An Equilibrium Model of the First-Price Auction with Strategic Uncertainty: Theory and Empirics By Bernhard Kasberger
  2. The Combinatorial Multi-Round Ascending Auction By Bernhard Kasberger; Alexander Teytelboym
  3. Incentive Compatibility in Two-Stage Repeated Stochastic Games By Bharadwaj Satchidanandan; Munther A. Dahleh
  4. Stable Decompositions of Coalition Formation Games By Agustín G. Bonifacio; Elena Inarra; Pablo Neme
  5. Preference Restrictions for Simple and Strategy-Proof Rules: Local and Weakly Single-Peaked Domains By Agustín Bonifacio; Jordi Massó; Pablo Neme

  1. By: Bernhard Kasberger
    Abstract: In many first-price auctions, bidders face considerable strategic uncertainty: They cannot perfectly anticipate the other bidders' bidding behavior. We propose a model in which bidders do not know the entire distribution of opponent bids but only the expected (winning) bid and lower and upper bounds on the opponent bids. We characterize the optimal bidding strategies and prove the existence of equilibrium beliefs. Finally, we apply the model to estimate the cost distribution in highway procurement auctions and find good performance out-of-sample.
    Date: 2022–02
  2. By: Bernhard Kasberger; Alexander Teytelboym
    Abstract: The Combinatorial Multi-Round Auction (CMRA) is a new auction format which has already been used in several recent European spectrum auctions. We characterize equilibria in the CMRA that feature auction-specific forms of truthful bidding, demand expansion, and demand reduction for settings in which bidders have either decreasing or non-decreasing marginal values. In particular, we establish sufficient conditions for riskless collusion. Overall, our results suggest that the CMRA might be an attractive auction design in the presence of highly complementary goods on sale. We discuss to what extent our theory is consistent with outcomes data in Danish spectrum auctions and how our predictions can be tested using bidding data.
    Date: 2022–03
  3. By: Bharadwaj Satchidanandan; Munther A. Dahleh
    Abstract: We address the problem of mechanism design for two-stage repeated stochastic games -- a novel setting using which many emerging problems in next-generation electricity markets can be readily modeled. Repeated playing affords the players a large class of strategies that adapt a player's actions to all past observations and inferences obtained therefrom. In other settings such as iterative auctions or dynamic games where a large strategy space of this sort manifests, it typically has an important implication for mechanism design: It may be impossible to obtain truth-telling as a dominant strategy equilibrium. Consequently, in such scenarios, it is common to settle for mechanisms that render truth-telling only a Nash equilibrium, or variants thereof, even though Nash equilibria are known to be poor models of real-world behavior owing to each player having to make overly specific assumptions about the behaviors of the other players in order for them to employ their Nash equilibrium strategy. In general, the lesser the burden of speculation in an equilibrium, the more plausible it is that it models real-world behavior. Guided by this maxim, we introduce a new notion of equilibrium called Dominant Strategy Non-Bankrupting Equilibrium (DNBE) which requires the players to make very little assumptions about the behavior of the other players to employ their equilibrium strategy. Consequently, a mechanism that renders truth-telling a DNBE as opposed to only a Nash equilibrium could be quite effective in molding real-world behavior along the desired lines. Finally, we present a mechanism for two-stage repeated stochastic games that renders truth-telling a Dominant Strategy Non-Bankrupting Equilibrium. The mechanism also guarantees individual rationality and maximizes social welfare.
    Date: 2022–03
  4. By: Agustín G. Bonifacio (Universidad Nacional de San Luis/CONICET); Elena Inarra (University of the Basque Country); Pablo Neme (Universidad Nacional de San Luis/CONICET)
    Abstract: It is known that a coalition formation game may not have a stable coalition structure. In this study we propose a new solution concept for these games, which we call “stable decomposition”, and show that each game has at least one. This solution consists of a collection of coalitions organized in sets that “protect” each other in a stable way. When sets of this collection are singletons, the stable decomposition can be identified with a stable coalition structure. As an application, we study convergence to stability in coalition formation games.
    Keywords: Coalition formation, matching, absorbing sets, stable decompositions.
    JEL: C71 C78
    Date: 2022–01
  5. By: Agustín Bonifacio (Universidad Nacional de San Luis/CONICET); Jordi Massó (Universitat Autònoma de Barcelona/BSE); Pablo Neme (Universidad Nacional de San Luis/CONICET)
    Abstract: We show that if a rule is strategy-proof, unanimous, anonymous and tops-only, then the preferences in its domain have to be local and weakly single-peaked, relative to a family of partial orders obtained from the rule by confronting at most three alternatives with distinct levels of support. Moreover, if this domain is enlarged by adding a non local and weakly single-peaked preference, then the rule becomes manipulable. We finally show that local and weak single-peakedness constitutes a weakening of known and well-studied restricted domains of preferences.
    Keywords: : Single-peakedness; Strategy-proofness; Anonymity; Unanimity; Tops-onlyness
    JEL: D71
    Date: 2022–03

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