nep-des New Economics Papers
on Economic Design
Issue of 2022‒08‒15
ten papers chosen by
Alex Teytelboym
University of Oxford

  1. Auction Design with Data-Driven Misspecifications By Philippe Jehiel; Konrad Mierendorff
  2. The Lattice of Envy-Free Many-to-Many Matchings with Contracts By Agustín G. Bonifacio; Nadia Guiñazú; Noelia Juarez; Pablo Neme; Jorge Oviedo
  3. Efficient incentives with social preferences By Daske, Thomas; March, Christoph
  4. High Satisfaction in Thin Dynamic Matching Markets By Johannes B\"aumler; Martin Bullinger; Stefan Kober; Donghao Zhu
  5. Fair and Fast Tie-Breaking for Voting By Lirong Xia
  6. Polynomial Voting Rules By Wenpin Tang; David D. Yao
  7. Persuasion as Matching By Anton Kolotilin; Roberto Corrao; Alexander Wolitzky
  8. Screening with Persuasion By Dirk Bergemann; Tibor Heumann; Stephen Morris
  9. Screening Adaptive Cartels By Juan M. Ortner; Sylvain Chassang; Kei Kawai; Jun Nakabayashi
  10. A self-contained karma economy for the dynamic allocation of common resources By Ezzat Elokda; Saverio Bolognani; Andrea Censi; Florian D\"orfler; Emilio Frazzoli

  1. By: Philippe Jehiel (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, UCL - University College of London [London]); Konrad Mierendorff (UCL - University College of London [London])
    Abstract: We study the existence of e¢cient auctions in private value settings in which some bidders choose their bids based on the accessible data from past similar auctions consisting of bids and ex post values. We consider steady-states in such environments with a mix of rational and data-driven bidders, and we allow for correlation across bidders in the signal distributions about the ex post values. After reviewing the working of the approach in second-price and first-price auctions, we show our main result that there is no e¢cient auction in such environments.
    Keywords: Belief Formation,Auctions,E¢ciency,Analogy-based Expectations Belief Formation
    Date: 2022–07
  2. By: Agustín G. Bonifacio (Universidad Nacional de San Luis/CONICET); Nadia Guiñazú (Universidad Nacional de San Luis/CONICET); Noelia Juarez (Universidad Nacional de San Luis/CONICET); Pablo Neme (Universidad Nacional de San Luis/CONICET); Jorge Oviedo (Universidad Nacional de San Luis/CONICET)
    Abstract: We study envy-free allocations in a many-to-many matching model with contracts in which agents on one side of the market (doctors) are endowed with substitutable choice functions and agents on the other side of the market (hospitals) are endowed with responsive preferences. Envy-freeness is a weakening of stability that allows blocking contracts involving a hospital with a vacant position and a doctor that does not envy any of the doctors that the hospital currently employs. We show that the set of envy-free allocations has a lattice structure. Furthermore, we define a Tarski operator on this lattice and use it to model a vacancy chain dynamic process by which, starting from any envy-free allocation, a stable one is reached.
    Keywords: Matching, envy-freeness, lattice, Tarski operator, re-equilibration process, vacancy chain.
    JEL: C78 D47
    Date: 2022–06
  3. 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 how 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,participation stimulation
    JEL: C72 C78 D62 D82
    Date: 2022
  4. By: Johannes B\"aumler; Martin Bullinger; Stefan Kober; Donghao Zhu
    Abstract: Dynamic matching markets are an ubiquitous object of study with applications in health, labor, or dating. There exists a rich literature on the formal modeling of such markets. Typically, these models consist of an arrival procedure, governing when and which agents enter the market, and a sojourn period of agents during which they may leave the market matched with another present agent, or after which they leave the market unmatched. One important focus lies on the design of mechanisms for the matching process aiming at maximizing the quality of the produced matchings or at minimizing waiting costs. We study a dynamic matching procedure where homogeneous agents arrive at random according to a Poisson process and form edges at random yielding a sparse market. Agents leave according to a certain departure distribution and may leave early by forming a pair with a compatible agent. The objective is to maximize the number of matched agents. Our main result is to show that a mild guarantee on the maximum sojourn time of agents suffices to get almost optimal performance of instantaneous matching, despite operating in a thin market. This has the additional advantages of avoiding the risk of market congestion and guaranteeing short waiting times. We develop new techniques for proving our results going beyond commonly adopted methods for Markov processes.
    Date: 2022–06
  5. By: Lirong Xia
    Abstract: We introduce a notion of fairest tie-breaking for voting w.r.t. two widely-accepted fairness criteria: anonymity (all voters being treated equally) and neutrality (all alternatives being treated equally). We proposed a polynomial-time computable fairest tie-breaking mechanism, called most-favorable-permutation (MFP) breaking, for a wide range of decision spaces, including single winners, $k$-committees, $k$-lists, and full rankings. We characterize the semi-random fairness of commonly-studied voting rules with MFP breaking, showing that it is significantly better than existing tie-breaking mechanisms, including the commonly-used lexicographic and fixed-agent mechanisms.
    Date: 2022–05
  6. By: Wenpin Tang; David D. Yao
    Abstract: We propose and study a new class of polynomial voting rules for a general decentralized decision/consensus system, and more specifically for the PoS (Proof of Stake) protocol. The main idea, inspired by the Penrose square-root law and the more recent quadratic voting rule, is to differentiate a voter's voting power and the voter's share (fraction of the total in the system). We show that while voter shares form a martingale process, their voting powers follow a super-martingale that decays to zero over time. This prevents any voter from controlling the voting process, and thus enhances decentralization. When the initial total volume of votes (or stakes) is large, we show a phase transition in share stability (or the lack thereof), corresponding to the voter's initial share relative to the total. We also study the scenario in which trading (of votes/stakes) among the voters is allowed, and quantify the level of risk sensitivity (or risk averse) that will remove any incentive for a voter to trade.
    Date: 2022–06
  7. By: Anton Kolotilin; Roberto Corrao; Alexander Wolitzky
    Abstract: In persuasion problems where the receiver's action is one-dimensional and his utility is single-peaked, optimal signals are characterized by duality, based on a first-order approach to the receiver's problem. A signal is optimal if and only if the induced joint distribution over states and actions is supported on a compact set (the contact set) where the dual constraint binds. A signal that pools at most two states in each realization is always optimal, and such pairwise signals are the only solutions under a non-singularity condition on utilities (the twist condition). We provide conditions under which higher actions are induced at more or less extreme pairs of states. Finally, we provide conditions for the optimality of either full disclosure or negative assortative disclosure, where signal realizations can be ordered from least to most extreme. Optimal negative assortative disclosure is characterized as the solution to a pair of ordinary differential equations.
    Date: 2022–06
  8. By: Dirk Bergemann (Cowles Foundation, Yale University); Tibor Heumann (Pontificia Universidad Católica de Chile); Stephen Morris (Dept. of Economics, MIT)
    Abstract: We consider a general nonlinear pricing environment with private information. We characterize the information structure that maximizes the seller’s profits. The seller who cannot observe the buyer’s willingness to pay can control both the signal that a buyer receives about his value and the selling mechanism. The optimal screening mechanism has finitely many items even with a continuum of types. We identify sufficient conditions under which the optimal mechanism has a single item. Thus, the socially efficient variety of items is decreased drastically at the expense of higher revenue and lower information rents.
    Keywords: Nonlinear Pricing, Finite Menu, Second-degree Price Discrimination, Recommender System
    JEL: D44 D47 D83 D84
    Date: 2022–07
  9. By: Juan M. Ortner; Sylvain Chassang; Kei Kawai; Jun Nakabayashi
    Abstract: We propose an equilibrium theory of data-driven antitrust oversight in which regulators launch investigations on the basis of suspicious bidding patterns and cartels can adapt to the statistical screens used by regulators. We emphasize the use of asymptotically safe tests, i.e. tests that are passed with probability approaching one by competitive firms, regardless of the underlying economic environment. Our main result establishes that screening for collusion with safe tests is a robust improvement over laissez-faire. Safe tests do not create new collusive equilibria, and do not hurt competitive industries. In addition, safe tests can have strict bite, including unraveling all collusive equilibria in some settings. We provide evidence that cartel adaptation to regulatory oversight is a real concern.
    JEL: C57 C72 D44 H57 L4
    Date: 2022–07
  10. By: Ezzat Elokda; Saverio Bolognani; Andrea Censi; Florian D\"orfler; Emilio Frazzoli
    Abstract: This paper presents karma mechanisms, a novel approach to the repeated allocation of a scarce resource among competing agents over an infinite time. Examples of such resource allocation problems include deciding which trip requests to serve in a ride-hailing platform during peak demand, granting the right of way in intersections, or admitting internet content to a fast channel for improved quality of service. We study a simplified yet insightful formulation of these problems where at every time two agents from a large population get randomly matched to compete over the resource. The intuitive interpretation of a karma mechanism is "If I give in now, I will be rewarded in the future." Agents compete in an auction-like setting where they bid units of karma, which circulates directly among them and is self-contained in the system. We demonstrate that this allows a society of self-interested agents to achieve high levels of efficiency without resorting to a (possibly problematic) monetary pricing of the resource. We model karma mechanisms as dynamic population games, in which agents have private states - their urgency to acquire the resource and how much karma they have - that vary in time based on their strategic decisions. We adopt the stationary Nash equilibrium as the solution concept and prove its existence. We then analyze the performance at the stationary Nash equilibrium numerically. For the case where the agents have homogeneous preferences, we compare different mechanism design choices which allow to strike trade-offs between efficiency and fairness metrics, showing how it is possible to achieve an efficient and ex-post fair allocation when the agents are future aware. Finally, we test the robustness of the mechanisms against heterogeneity in the urgency processes and the future awareness of the agents and propose remedies to some of the observed phenomena via karma redistribution.
    Date: 2022–07

This nep-des issue is ©2022 by 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.