nep-des New Economics Papers
on Economic Design
Issue of 2022‒07‒11
eight papers chosen by
Alex Teytelboym
University of Oxford

  1. Mechanisms without transfers for fully biased agents By Deniz Kattwinkel; Axel Niemeyer; Justus Preusser; Alexander Winter
  2. A Continuum Model of Stable Matching With Finite Capacities By Nick Arnosti
  3. Improved Approximation to First-Best Gains-from-Trade By Yumou Fei
  4. Identification of Auction Models Using Order Statistics By Yao Luo; Ruli Xiao
  5. Optimal Information Design of Online Marketplaces with Return Rights By Jonas von Wangenheim
  6. The Blocker Postulates for Measures of Voting Power By Arash Abizadeh; Adrian Vetta
  7. Desirable Rankings: A New Method for Ranking Outcomes of a Competitive Process By Thayer Morrill; Peter Troyan
  8. Pareto-Improving Data-Sharing By Ronen Gradwohl; Moshe Tennenholtz

  1. By: Deniz Kattwinkel; Axel Niemeyer; Justus Preusser; Alexander Winter
    Abstract: A principal must decide between two options. Which one she prefers depends on the private information of two agents. One agent always prefers the first option; the other always prefers the second. Transfers are infeasible. One application of this setting is the efficient division of a fixed budget between two competing departments. We first characterize all implementable mechanisms under arbitrary correlation. Second, we study when there exists a mechanism that yields the principal a higher payoff than she could receive by choosing the ex-ante optimal decision without consulting the agents. In the budget example, such a profitable mechanism exists if and only if the information of one department is also relevant for the expected returns of the other department. We generalize this insight to derive necessary and sufficient conditions for the existence of a profitable mechanism in the n-agent allocation problem with independent types.
    Date: 2022–05
  2. By: Nick Arnosti
    Abstract: This paper introduces a unified framework for stable matching, which nests the traditional definition of stable matching in finite markets and the continuum definition of stable matching from Azevedo and Leshno (2016) as special cases. Within this framework, I identify a novel continuum model, which makes individual-level probabilistic predictions. This new model always has a unique stable outcome, which can be found using an analog of the Deferred Acceptance algorithm. The crucial difference between this model and that of Azevedo and Leshno (2016) is that they assume that the amount of student interest at each school is deterministic, whereas my proposed alternative assumes that it follows a Poisson distribution. As a result, this new model accurately predicts the simulated distribution of cutoffs, even for markets with only ten schools and twenty students. This model generates new insights about the number and quality of matches. When schools are homogeneous, it provides upper and lower bounds on students' average rank, which match results from Ashlagi, Kanoria and Leshno (2017) but apply to more general settings. This model also provides clean analytical expressions for the number of matches in a platform pricing setting considered by Marx and Schummer (2021).
    Date: 2022–05
  3. By: Yumou Fei
    Abstract: We study the two-agent single-item bilateral trade. Ideally, the trade should happen whenever the buyer's value for the item exceeds the seller's cost. However, the classical result of Myerson and Satterthwaite showed that no mechanism can achieve this without violating one of the Bayesian incentive compatibility, individual rationality and weakly balanced budget conditions. This motivates the study of approximating the trade-whenever-socially-beneficial mechanism, in terms of the expected gains-from-trade. Recently, Deng, Mao, Sivan, and Wang showed that the random-offerer mechanism achieves at least a 1/8.23 approximation. We improve this lower bound to 1/3.15 in this paper. We also determine the exact worst-case approximation ratio of the seller-pricing mechanism assuming the distribution of the buyer's value satisfies the monotone hazard rate property.
    Date: 2022–04
  4. By: Yao Luo; Ruli Xiao
    Abstract: Auction data often contain information on only the most competitive bids as opposed to all bids. The usual measurement error approaches to unobserved heterogeneity are inapplicable due to dependence among order statistics. We bridge this gap by providing a set of positive identification results. First, we show that symmetric auctions with discrete unobserved heterogeneity are identifiable using two consecutive order statistics and an instrument or three consecutive ones. Second, we extend the results to ascending auctions with unknown competition and unobserved heterogeneity.
    Date: 2022–05
  5. By: Jonas von Wangenheim
    Abstract: Customer data enables online marketplaces to identify buyers’ preferences and provide individualized product information. Buyers learn their product value only after contracting when the product is delivered. I characterize the impact of such ex-ante information on buyer surplus and seller surplus, when the seller sets prices and refund conditions in response to the ex-ante information. I show that efficient trade and an arbitrary split of the surplus can be achieved. For the buyer-optimal signal low-valuation buyers remain partially uninformed. Such a signal induces sellers to sell at low prices without refund options, resulting in commonly observed practices of opaque sales.
    Keywords: information disclosure, sequential screening, information design, strategic learning, Bayesian persuasion, mechanism design, platform economics, consumer protection
    JEL: D82 D86 D18
    Date: 2022–05
  6. By: Arash Abizadeh; Adrian Vetta
    Abstract: A proposed measure of voting power should satisfy two conditions to be plausible: first, it must be conceptually justified, capturing the intuitive meaning of what voting power is; second, it must satisfy reasonable postulates. This paper studies a set of postulates, appropriate for a priori voting power, concerning blockers (or vetoers) in a binary voting game. We specify and motivate five such postulates, namely, two subadditivity blocker postulates, two minimum-power blocker postulates, each in weak and strong versions, and the added-blocker postulate. We then test whether three measures of voting power, namely the classic Penrose-Banzhaf measure, the classic Shapley-Shubik index, and the newly proposed Recursive Measure, satisfy these postulates. We find that the first measure fails four of the postulates, the second fails two, while the third alone satisfies all five postulates. This work consequently adds to the plausibility of the Recursive Measure as a reasonable measure of voting power.
    Date: 2022–05
  7. By: Thayer Morrill; Peter Troyan
    Abstract: We consider the problem of aggregating individual preferences over alternatives into a social ranking. A key feature of the problems that we consider, and the one that allows us to obtain positive results, in contrast to negative results such as Arrow's Impossibility Theorem, is that the alternatives to be ranked are outcomes of a competitive process. Examples include rankings of colleges or academic journals. The foundation of our ranking method is that alternatives that an agent desires, those that they have been rejected by, should be ranked higher than the one they receive. We provide a mechanism to produce a social ranking given any preference profile and outcome assignment, and characterize this ranking as the unique one that satisfies certain desirable axioms.
    Date: 2022–05
  8. By: Ronen Gradwohl; Moshe Tennenholtz
    Abstract: We study the effects of data sharing between firms on prices, profits, and consumer welfare. Although indiscriminate sharing of consumer data decreases firm profits due to the subsequent increase in competition, selective sharing can be beneficial. We show that there are data-sharing mechanisms that are strictly Pareto-improving, simultaneously increasing firm profits and consumer welfare. Within the class of Pareto-improving mechanisms, we identify one that maximizes firm profits and one that maximizes consumer welfare.
    Date: 2022–05

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