nep-des New Economics Papers
on Economic Design
Issue of 2022‒04‒25
four papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. School Choice By Atila Abdulkadiroglu; Tommy Andersson
  2. Renegotiation and Discrimination in Symmetric Procurement Auctions By Leandro Arozamena; Federico Weinschelbaum; Juan-José Ganuza
  3. Simple contracts with adverse selection and moral hazard By Gottlieb, Daniel; Moreira, Humberto
  4. An Algorithmic Introduction to Savings Circles By Rediet Abebe; Adam Eck; Christian Ikeokwu; Samuel Taggart

  1. By: Atila Abdulkadiroglu; Tommy Andersson
    Abstract: School districts in the US and around the world are increasingly moving away from traditional neighborhood school assignment, in which pupils attend closest schools to their homes. Instead, they allow families to choose from schools within district boundaries. This creates a market with parental demand over publicly-supplied school seats. More frequently than ever, this market for school seats is cleared via market design solutions grounded in recent advances in matching and mechanism design theory. The literature on school choice is reviewed with emphasis placed on the trade-offs among policy objectives and best practices in the design of admissions processes. It is concluded with a brief discussion about how data generated by assignment algorithms can be used to answer contemporary empirical questions about school effectiveness and policy interventions.
    JEL: D02 D47 I26
    Date: 2022–03
  2. By: Leandro Arozamena; Federico Weinschelbaum; Juan-José Ganuza
    Abstract: In order to make competition open, fair and transparent, procurement regulations often require equal treatment for all bidders. This paper shows how a favorite supplier can be treated preferentially (opening the door to home bias and corruption) even when explicit discrimination is not allowed. We analyze a procurement setting in which the optimal design of the project to be contracted is unknown. The sponsor has to invest in specifying the project. The larger the investment, the higher the probability that the initial design is optimal. When it is not, a bargaining process between the winning firm and the sponsor takes place. Profits from bargaining are larger for the favorite supplier than for its rivals. Given this comparative advantage, the favored firm bids more aggressively and then, it wins more often than standard firms. Finally, we show that the sponsor invests less in specifying the initial design, when favoritism is stronger. Underinvestment in design specication is a tool for providing a comparative advantage to the favored firm.
    Keywords: Auctions, Favoritism, Auction Design, Renegotiation, Corruption.
    JEL: C72 D44 D82
  3. By: Gottlieb, Daniel; Moreira, Humberto
    Abstract: We study a principal-agent model with moral hazard and adverse selection. Risk-neutral agents with limited liability have arbitrary private information about the distribution of outputs and the cost of effort. We show that under a multiplicative separability condition, the optimal mechanism offers a single contract. This condition holds, for example, when output is binary. If the principal’s payoff must also satisfy free disposal and the distribution of outputs has the monotone likelihood ratio property, the mechanism offers a single debt contract. Our results generalize if the output distribution is “close” to multiplicatively separable. Our model suggests that offering a single contract may be optimal in environments with adverse selection and moral hazard when agents are risk neutral and have limited liability.
    Keywords: principal-agent problem; contract theory; mechanism design
    JEL: J1
    Date: 2021–07–23
  4. By: Rediet Abebe; Adam Eck; Christian Ikeokwu; Samuel Taggart
    Abstract: Rotating savings and credit associations (roscas) are informal financial organizations common in settings where communities have reduced access to formal financial institutions. In a rosca, a fixed group of participants regularly contribute sums of money to a pot. This pot is then allocated periodically using lottery, aftermarket, or auction mechanisms. Roscas are empirically well-studied in economics. They are, however, challenging to study theoretically due to their dynamic nature. Typical economic analyses of roscas stop at coarse ordinal welfare comparisons to other credit allocation mechanisms, leaving much of roscas' ubiquity unexplained. In this work, we take an algorithmic perspective on the study of roscas. Building on techniques from the price of anarchy literature, we present worst-case welfare approximation guarantees. We further experimentally compare the welfare of outcomes as key features of the environment vary. These cardinal welfare analyses further rationalize the prevalence of roscas. We conclude by discussing several other promising avenues.
    Date: 2022–03

This nep-des issue is ©2022 by Guillaume Haeringer and 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.
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