nep-des New Economics Papers
on Economic Design
Issue of 2022‒06‒20
eleven papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Coordinated Strategic Manipulations and Mechanisms in School Choice By Ryo Shirakawa
  2. Core-Stability in Assignment Markets with Financially Constrained Buyers By Eleni Batziou; Martin Bichler; Maximilian Fichtl
  3. From immediate acceptance to deferred acceptance: effects on school admissions and achievement in England By Parag A. Pathak; Kevin Ren; Camille Terrier
  4. Two-Sided Matching Without Transfers: A Unifying Empirical Framework By Ederer, Tim
  5. Efficient Incentives with Social Preferences By Daske, Thomas; March, Christoph
  6. Private Information and Optimal Infant Industry Protection By B. Ravikumar; Raymond Riezman; Yuzhe Zhang
  7. Third-Party Sale of Information By Evans, R., Park, I-U.; Park, I-U.
  8. Optimal screening contests By Sumit Goel
  9. An experiment on the Nash program: Comparing two strategic mechanisms implementing the Shapley value By Michela Chessa; Nobuyuki Hanaki; Aymeric Lardon; Takashi Yamada
  10. Credible Persuasion By Xiao Lin; Ce Liu
  11. Pricing with algorithms By Rohit Lamba; Sergey Zhuk

  1. By: Ryo Shirakawa (Graduate School of Economics, The Univerity of Tokyo and Junior Research Fellow, Research Institute for Economics & Business Administration (RIEB), Kobe University, JAPAN)
    Abstract: This study observes that no group strategy-proof mechanism satisfies even a fairly weak notion of stability in a school choice setting. In response to this result, we introduce two monotonicity axioms, which we call top-dropping monotonicity and extension monotonicity, as alternatives to group strategy-proofness. We prove that these two axioms are equivalent to the requirement that no group of students gains from a simple manipulation of their preferences. Replacing group strategy-proofness with the two axioms, we find that the Kesten's (2010) efficiency adjusted deferred acceptance mechanism is the unique mechanism satisfying the three criteria. We also provide several applications of the two monotonicity axioms, finding axiomatic characterizations of the deferred acceptance mechanism and a class of mechanisms in which stability and strategy-proofness are equivalent.
    Keywords: Matching; School choice; Strategy-proofness; Group strategy-proofness; Monotonicity; Deferred acceptance; Efficiency adjusted deferred acceptance
    JEL: C78 D47
    Date: 2022–06
  2. By: Eleni Batziou; Martin Bichler; Maximilian Fichtl
    Abstract: We study markets where a set of indivisible items is sold to bidders with unit-demand valuations, subject to a hard budget limit. Without financial constraints and pure quasilinear bidders, this assignment model allows for a simple ascending auction format that maximizes welfare and is incentive-compatible and core-stable. Introducing budget constraints, the ascending auction requires strong additional conditions on the unit-demand preferences to maintain its properties. We show that, without these conditions, we cannot hope for an incentive-compatible and core-stable mechanism. We design an iterative algorithm that depends solely on a trivially verifiable ex-post condition and demand queries, and with appropriate decisions made by an auctioneer, always yields a welfare-maximizing and core-stable outcome. If these conditions do not hold, we cannot hope for incentive-compatibility and computing welfare-maximizing assignments and core-stable prices is hard: Even in the presence of value queries, where bidders reveal their valuations and budgets truthfully, we prove that the problem becomes NP-complete for the assignment market model. The analysis complements complexity results for markets with more complex valuations and shows that even with simple unit-demand bidders the problem becomes intractable. This raises doubts on the efficiency of simple auction designs as they are used in high-stakes markets, where budget constraints typically play a role.
    Date: 2022–05
  3. By: Parag A. Pathak; Kevin Ren; Camille Terrier
    Abstract: Countries and cities around the world increasingly rely on centralized systems to assign students to schools. Two algorithms, deferred acceptance (DA) and immediate acceptance (IA), are widespread. The latter is often criticized for harming disadvantaged families who fail to get access to popular schools. This paper investigates the effect of the national ban of the IA mechanism in England in 2008. Before the ban, 49 English local authorities used DA and 16 used IA. All IA local authorities switched to DA afterwards, giving rise to a cross-market difference-in-differences research design. Our results show that the elimination of IA reduces measures of school quality for low-SES students more than high-SES students. After the ban, low-SES students attend schools with lower value-added and more disadvantaged and low-achieving peers. This effect is primarily driven by a decrease in low-SES admissions at selective schools. Our findings point to an unintended consequence of the IA to DA transition: by encouraging high-SES parents to report their preferences truthfully, DA increases competition for top schools, which crowds out low-SES students.
    Keywords: Schools, school admissions, immediate acceptance, deferred acceptance
    Date: 2021–11–15
  4. By: Ederer, Tim
    Abstract: This paper provides a unifying framework of one-to-one and many-to-one matching without transfers and investigates how data on realized matches can be leveraged to identify preferences of participating agents. I find that, under parsimonious assumptions on preferences, one can only identify the joint surplus function both in the one-to-one and many-to-one case. While this negative identification result was already established for the one-to-one case, I reconcile this finding with the recent literature showing that preferences are separately identified when having data on many-to-one matchings. I find that these positive identification results are mostly driven by restrictions imposed on preferences rather than the additional identification power made available through the many-to-one structure of the data. I then show that by imposing similar restrictions on preferences, one can recover identification of preferences both in the one-to-one and many-to-one case. Finally, I show that the additional data brought by many-to-one matchings can alternatively be used to estimate more precisely the distribution of un-observed preference heterogeneity.
    Date: 2022–06–16
  5. By: Daske, Thomas; March, Christoph
    Abstract: This study explores mechanism design with allocation-based social preferences. Agents' social preferences and private payoffs are all subject to asymmetric information. We assume quasi-linear utility and independent types. We show that the asymmetry of information about agents' social preferences can be operationalized to satisfy agents' participation constraints. Our main result is a possibility result for groups of at least three agents: If endowments are sufficiently large, any such group can resolve any given allocation problem with an ex-post budget-balanced mechanism that is Bayesian incentive-compatible, interim individually rational, and ex-post Pareto-efficient.
    Keywords: mechanism design,social preferences,Bayesian implementation,participation constraints
    JEL: C72 C78 D62 D82
    Date: 2022
  6. By: B. Ravikumar; Raymond Riezman; Yuzhe Zhang
    Abstract: We study infant industry protection using a dynamic model in which the industry's cost is initially higher than that of foreign competitors. The industry can stochastically lower its cost via learning by doing. Whether the industry has transitioned to low cost is private information. We use a mechanism-design approach to induce the industry to reveal its true cost. We show that (i) the optimal protection, measured by infant industry output, declines over time and is less than that under public information, (ii) the optimal protection policy is time consistent under public information but not under private information, (iii) the optimal protection policy can be implemented with minimal information requirements, and (iv) a government with a limited budget can use a simple approach to choose which industries to protect.
    Keywords: Protection; Infant Industry; Private Information; Mechanism Design; Time Consistency
    JEL: D82 F10 F13 O25
    Date: 2022–05–20
  7. By: Evans, R., Park, I-U.; Park, I-U.
    Abstract: We study design and pricing of information by a monopoly information provider for a buyer in a trading relationship with a seller. The profit-maximizing information structure has a binary threshold character. This structure is inefficient when seller production cost is low. Compared with a situation of no information, the information provider increases welfare if cost is high but reduces it if cost is low. A monopoly provider creates higher welfare than a competitive market in information if the prior distribution of buyer valuations is not too concentrated. Giving the seller a veto over the information contract generates full efficiency.
    Keywords: Information Sale, Mechanism Design, Information Design
    JEL: D42 D61 D82 D83 L12 L15
    Date: 2022–05–18
  8. By: Sumit Goel
    Abstract: We study the optimal design of contests as screening devices. In an incomplete information environment, contest results reveal information about the quality of the participating agents at the cost of potentially wasteful effort put in by these agents. We are interested in finding contests that maximize the information revealed per unit of expected effort put in by the agents. In a model with linear costs of effort and privately known marginal costs, we find the Bayes-Nash equilibrium strategy for arbitrary prize structures ($1=v_1 \geq v_2 \dots \geq v_n=0$) and show that the equilibrium strategy mapping marginal costs to effort is always a density function. It follows then that the expected effort under the uniform prior on marginal costs is independent of the prize structure. Restricting attention to a simple class of uniform prizes contests (top $k$ agents get $1$ and others get $0$), we find that the optimal screening contest under the uniform prior awards half as many prizes as there are agents. For the power distribution $F(\theta)=\theta^p$ with $p\geq 1$, we conjecture that the number of prizes in the optimal screening contest is decreasing in $p$. In addition, we also show that a uniform prize structure is generally optimal for the standard objectives of maximizing expected effort of an arbitrary agent, most efficient agent and least efficient agent.
    Date: 2022–05
  9. By: Michela Chessa; Nobuyuki Hanaki; Aymeric Lardon; Takashi Yamada
    Abstract: We experimentally compare two well-known mechanisms inducing the Shapley value as an ex ante equilibrium outcome of a noncooperative bargaining procedure: the demand-based Winter's demand commitment bargaining mechanism and the offer-based Hart and Mas-Colell procedure. Our results suggest that the offer-based Hart and Mas-Colell mechanism better induces players to cooperate and to agree on an efficient outcome, whereas the demand-based Winter mechanism better implements allocations that reflect players' effective power.
    Date: 2022–05
  10. By: Xiao Lin; Ce Liu
    Abstract: We propose a new notion of credibility for Bayesian persuasion problems. A disclosure policy is credible if the sender cannot profit from tampering with her messages while keeping the message distribution unchanged. We show that the credibility of a disclosure policy is equivalent to a cyclical monotonicity condition on its induced distribution over states and actions. We also characterize how credibility restricts the Sender's ability to persuade under different payoff structures. In particular, when the sender's payoff is state-independent, all disclosure policies are credible. We apply our results to the market for lemons, and show that no useful information can be credibly disclosed by the seller, even though a seller who can commit to her disclosure policy would perfectly reveal her private information to maximize profit.
    Date: 2022–05
  11. By: Rohit Lamba; Sergey Zhuk
    Abstract: This paper studies Markov perfect equilibria in a repeated duopoly model where sellers choose algorithms. An algorithm is a mapping from the competitor's price to own price. Once set, algorithms respond quickly. Customers arrive randomly and so do opportunities to revise the algorithm. In the simple game with two possible prices, monopoly outcome is the unique equilibrium for standard functional forms of the profit function. More generally, with multiple prices, exercise of market power is the rule -- in all equilibria, the expected payoff of both sellers is above the competitive outcome, and that of at least one seller is close to or above the monopoly outcome. Sustenance of such collusion seems outside the scope of standard antitrust laws for it does not involve any direct communication.
    Date: 2022–05

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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