nep-des New Economics Papers
on Economic Design
Issue of 2022‒08‒08
eight papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Fair Division with Two-Sided Preferences By Ayumi Igarashi; Yasushi Kawase; Warut Suksompong; Hanna Sumita
  2. Mechanisms for division problems with single-dipped preferences By Gong, Doudou; Dietzenbacher, Bas; Peters, Hans
  3. Voluntary Information Disclosure in Centralized Matching: Efficiency Gains and Strategic Properties By Andreas Bjerre-Nielsen; Emil Chrisander
  4. Optimal tax problems with multidimensional heterogeneity: A mechanism design approach By Laurence Jacquet; Etienne Lehmann
  5. Mechanism Design Approaches to Blockchain Consensus By Joshua S. Gans; Richard T. Holden
  6. Meetings and Mechanisms By Xiaoming Cai; Pieter Gautier; Ronald Wolthoff
  7. Coordinating Monetary Contributions in Participatory Budgeting By Haris Aziz; Sujit Gujar; Manisha Padala; Mashbat Suzuki; Jeremy Vollen
  8. Persuasion Without Priors By Alexei Parakhonyak; Anton Sobolev

  1. By: Ayumi Igarashi; Yasushi Kawase; Warut Suksompong; Hanna Sumita
    Abstract: We study a fair division setting in which a number of players are to be fairly distributed among a set of teams. In our model, not only do the teams have preferences over the players as in the canonical fair division setting, but the players also have preferences over the teams. We focus on guaranteeing envy-freeness up to one player (EF1) for the teams together with a stability condition for both sides. We show that an allocation satisfying EF1, swap stability, and individual stability always exists and can be computed in polynomial time, even when teams may have positive or negative values for players. Similarly, a balanced and swap stable allocation that satisfies a relaxation of EF1 can be computed efficiently. In addition, when teams have nonnegative values for players, we prove that an EF1 and Pareto optimal allocation exists, and such an allocation can be found in polynomial time if the valuations are binary.
    Date: 2022–06
  2. By: Gong, Doudou (RS: GSBE other - not theme-related research, Quantitative Economics); Dietzenbacher, Bas (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory); Peters, Hans (RS: FSE DKE Mathematics Centre Maastricht, QE Math. Economics & Game Theory)
    Abstract: A mechanism allocates one unit of an infinitely divisible commodity among agents reporting a number between zero and one. Nash, Pareto optimal Nash, and strong equilibria are analyzed for the case where the agents have single-dipped preferences. One of the main results is that when the mechanism is anonymous, monotonic, standard, and order preserving, then the Pareto optimal Nash and strong equilibria coincide and assign Pareto optimal allocations that are characterized by so-called maximal coalitions: members of a maximal coalition prefer an equal coalition share over obtaining zero, whereas the outside agents prefer zero over obtaining an equal share from joining the coalition.
    JEL: C72 D71
    Date: 2022–07–18
  3. By: Andreas Bjerre-Nielsen; Emil Chrisander
    Abstract: Information frictions can harm the welfare of participants in two-sided matching markets. Consider a centralized admission, where colleges cannot observe students' preparedness for success in a particular major or degree program. Colleges choose between using simple, cheap admission criteria, e.g., high school grades as a proxy for preparedness, or screening all applications, which is time-consuming for both students and colleges. To address issues of fairness and welfare, we introduce two novel mechanisms that allow students to disclose private information voluntarily and thus only require partial screening. The mechanisms are based on Deferred Acceptance and preserve its core strategic properties of credible preference revelation, particularly ordinal strategy-proofness. In addition, we demonstrate conditions for which cardinal welfare improves for market participants compared to not screening. Intuitively, students and colleges benefit from voluntary information disclosure if public information about students correlates weakly with students' private information and the cost of processing disclosed information is sufficiently low. Finally, we present empirical evidence from the Danish higher education system that supports critical features of our model. Our work has policy implications for the mechanism design of large two-sided markets where information frictions are inherent.
    Date: 2022–06
  4. By: Laurence Jacquet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université); Etienne Lehmann
    Abstract: We propose a new method, that we call an allocation perturbation, to derive the optimal nonlinear income tax schedules with multidimensional individual characteristics on which taxes cannot be conditioned. It is well established that, when individuals differ in terms of preferences on top of their skills, optimal marginal tax rates can be negative. In contrast, we show that with heterogeneous behavioral responses and skills, one has optimal positive marginal tax rates, under utilitarian preferences and maximin.
    Keywords: Optimal taxation,mechanism design,multidimensional screening problems,allocation perturbation
    Date: 2021–07–10
  5. By: Joshua S. Gans; Richard T. Holden
    Abstract: Blockchain consensus is a state whereby each node in a network agrees on the current state of the blockchain. Existing protocols achieve consensus via a contest or voting procedure to select one node as a dictator to propose new blocks. However, this procedure can still lead to potential attacks that make consensus harder to achieve or lead to coordination issues if multiple, competing chains (i.e., forks) are created with the potential that an untruthful fork might be selected. We explore the potential for mechanisms to be used to achieve consensus that are triggered when there is a dispute impeding consensus. Using the feature that nodes stake tokens in proof of stake (POS) protocols, we construct revelation mechanisms in which the unique (subgame perfect) equilibrium involves validating nodes propose truthful blocks using only the information that exists amongst all nodes. We construct operationally and computationally simple mechanisms under both Byzantine Fault Tolerance and a Longest Chain Rule, and discuss their robustness to attacks. Our perspective is that the use of simple mechanisms is an unexplored area of blockchain consensus and has the potential to mitigate known trade-offs and enhance scalability.
    JEL: D02 D47 D82 D86
    Date: 2022–06
  6. By: Xiaoming Cai; Pieter Gautier; Ronald Wolthoff
    Abstract: In this paper, we construct a framework to investigate how the way in which market participants meet each other affects outcomes like equilibrium trading mechanisms and allocations. We do so in an environment in which identical sellers post mechanisms to compete for buyers with ex-ante heterogeneous private valuations. We show that the market may segment into multiple submarkets, each consisting of all sellers posting a particular mechanism and all buyers deciding to visit those sellers. Under mild conditions, high-valuation buyers are all located in the same submarket. Then, we establish under what conditions, low valuation buyers are in: (i) the same submarket, (ii) a different submarket and (iii) a mixture of (i) and (ii). The decentralized equilibrium is always efficient when sellers can post auctions with reserve prices or entry fees.
    Keywords: search frictions; directed search; matching function; meeting technology; competing mechanisms; competing auctions
    JEL: C78 D44 D83
    Date: 2022–07–01
  7. By: Haris Aziz; Sujit Gujar; Manisha Padala; Mashbat Suzuki; Jeremy Vollen
    Abstract: We formalize a framework for coordinating the funding of projects and sharing the costs among agents with quasi-linear utility functions and individual budgets. Our model contains the classical discrete participatory budgeting model as a special case, while capturing other well-motivated problems. We propose several important axioms and objectives and study how well they can be simultaneously satisfied. One of our main results is that whereas welfare maximization admits an FPTAS, welfare maximization subject to a well-motivated and very weak participation requirement leads to a strong inapproximability result. We show that this result is bypassed if we consider some natural restricted valuations or when we take an average-case heuristic approach.
    Date: 2022–06
  8. By: Alexei Parakhonyak; Anton Sobolev
    Abstract: We consider an information design problem when the sender faces ambiguity regarding the probability distribution over the states of the world, the utility function and the prior of the receiver. The solution concept is minimax loss (regret), that is, the sender minimizes the distance from the full information benchmark in the worst-case scenario. We show that in the binary states and binary actions setting the optimal strategy involves a mechanism with a continuum of messages, which admits a representation as a randomization over mechanisms consisting of two messages. A small level of uncertainty regarding the re- ceiver’s prior makes the sender more truthful than in the full information benchmark, but as uncertainty increases at some point the sender starts to lie more. If the sender either knows the probability distribution over the states of the world, or knows that the receiver knows it, then the maximal loss is bounded from above by 1/e. This result generalizes to an infinite state model, provided that the set of admissible mechanisms is limited to cut-off strategies.
    Keywords: Persuasion, Robustness, Multiple priors, Minimax regret
    JEL: D81 D82 D83
    Date: 2022–07

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