nep-des New Economics Papers
on Economic Design
Issue of 2022‒09‒05
ten papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Greedy Allocations and Equitable Matchings By Quitz\'e Valenzuela-Stookey
  2. Bayesian Persuasion: Reduced Form Approach By Juuso Toikka; Akhil Vohra; Rakesh Vohra
  3. A Study of Bid-rigging in Procurement Auctions: Evidence from Indonesia, Georgia, Mongolia, Malta, and State of California By Kei Kawai; Jun Nakabayashi; Daichi Shimamoto
  4. Time-constrained Dynamic Mechanisms for College Admissions By Li Chen; Juan S. Pereyra; Min Zhu
  5. Symmetric reduced form voting By Debasis Mishra; Xu Lang
  6. The character of non-manipulable collective choices between two alternatives By Achille Basile; K. P. S. Bhaskara Rao; Surekha Rao
  7. Loss aversion in strategy-proof school-choice mechanisms By Vincent Meisner; Jonas von Wangenheim
  8. Gacha Game: When Prospect Theory Meets Optimal Pricing By Tan Gan
  9. Cooperation, competition, and welfare in a matching market By Bester, Helmut; Sákovics, József
  10. Stable source connection and assignment problems as multi-period shortest path problems By Streekstra, Leanne; Trudeau, Christian

  1. By: Quitz\'e Valenzuela-Stookey
    Abstract: I study multi-item allocation problems when agents have capacity constraints. I first provide an approximate extension to the multi-item setting of Border's characterization of realizable interim allocations. I identify necessary conditions for interim realizability, and show that these conditions are sufficient for realizability when the interim allocation in question is scaled by 1/2. I then characterize a subset of the realizable polytope which contains all such scaled allocations. This polytope is generated by a majorization relationship between the scaled interim allocations and allocations induced by a certain "greedy algorithm". I use these results to study mechanism design with equity concerns and model ambiguity. I also relate optimal mechanisms to the commonly used deferred acceptance and serial dictatorship matching algorithms. I provide conditions on the principal's objective under which deferred acceptance is a 2-approximation to the optimal mechanism.
    Date: 2022–07
  2. By: Juuso Toikka (University of Pennsylvania); Akhil Vohra (University of Cambridge); Rakesh Vohra (University of Pennsylvania)
    Abstract: We introduce reduced form representations of Bayesian persuasion problems where the variables are the probabilities that the receiver takes each of her actions. These are simpler objects than, say, the joint distribution over states and actions in the obedience formulation of the persuasion problem. This can make a difference in computational and analytical tractability which we illustrate with two applications. The first shows that with quadratic receiver payoffs, the worst-case complexity scales with the number of actions and not the number of states. If |A |and |S | denote the number of actions and states respectively, the worst case complexity of the obedience formulation is O(|A |2.5 max{|A |2.5,|S |2.5}). The worst case complexity of the reduced form representation is O(|A |3). In the second application, the reduced form leads to a simple greedy algorithm to determine the maximum value a sender can achieve in any cheap talk equilibrium.
    Keywords: Bayesian Persuasion, Information Design, Mechanism Design, Duality
    JEL: C6 D82 D83
    Date: 2022–06–28
  3. By: Kei Kawai; Jun Nakabayashi; Daichi Shimamoto
    Abstract: We apply a Regression Discontinuity based approach to screen for collusion developed in Kawai et al. (2022) to public procurement data from five countries. We find that bidders who win by a very small margin have significantly lower backlog than those who lose by a very small margin in the sample of procurement auctions from Indonesia, suggesting that bidders collude by bid rotation. Our results suggest that the proportion of noncompetitive auctions is at least about 5% for all E-procurement auctions and about 3% for all auctions in Indonesia. We cannot reject the null of competition in other countries.
    JEL: L41 O52 O53
    Date: 2022–07
  4. By: Li Chen; Juan S. Pereyra; Min Zhu
    Abstract: Recent literature shows that dynamic matching mechanisms may outperform the standard mechanisms to deliver desirable results. We highlight an under-explored design dimension, the time constraints that students face under such a dynamic mechanism. First, we theoretically explore the effect of time constraints and show that the outcome can be worse than the outcome produced by the student-proposing deferred acceptance mechanism. Second, we present evidence from the Inner Mongolian university admissions that time constraints can prevent dynamic mechanisms from achieving stable outcomes, creating losers and winners among students.
    Date: 2022–07
  5. By: Debasis Mishra (Indian Statistical Institute, Delhi); Xu Lang (Southwest University of Finance and Economics)
    Abstract: We study a model of voting with two alternatives in a symmetric environment. We characterize the interim allocation probabilities that can be implemented by a symmetric voting rule. We show that every such interim allocation probabilities can be implemented as a convex combination of two families of deterministic voting rules: qualified majority and qualified anti-majority. We also provide analogous results by requiring implementation by a unanimous voting rule. A consequence of our results is that if the prior is indepenent, every symmetric and orinally Bayesian incentive compatible voting rule is reduced (interim) form equivalent to a symmetric and strategy-proof voting rule.
    Keywords: reduced form voting, unanimous voting, ordinal Bayesian incentive compatibility
    JEL: D82
    Date: 2022–08
  6. By: Achille Basile; K. P. S. Bhaskara Rao; Surekha Rao
    Abstract: We consider classes of non-manipulable two-valued social choice functions, i.e., social choice functions with range of cardinality two within a larger set of alternatives. Corresponding to the different classes, the functional forms are described. Further we show that they, and some others from previous literature, can all be unified using a common structure. Such a structure relies on the concept of character function we introduce. This is a function from the domain of the admissible profiles, that notably we do not assume to be universal, to a partially ordered set. The proper choice of the character function, marks the distinction among different classes and permits the description of all social choice functions of a class in simple terms.
    Date: 2022–08
  7. By: Vincent Meisner; Jonas von Wangenheim
    Abstract: Evidence suggests that participants in strategy-proof matching mechanisms play dominated strategies. To explain the data, we introduce expectation-based loss aversion into a school-choice setting and characterize choice-acclimating personal equilibria. We find that non-truthful preference submissions can be strictly optimal if and only if they are top-rank monotone. In equilibrium, inefficiency or justified envy may arise in seemingly stable or efficient mechanisms. Specifically, students who are more loss averse or less confident than their peers obtain suboptimal allocations.
    Date: 2022–07
  8. By: Tan Gan
    Abstract: This paper studies the pricing problem of selling a unit good to a prospect theory buyer. With non-negative constraints on the price, the optimal profit is always bounded. This suggests a distinction between random pricing and gambling, where the principal can extract infinite profit. If the buyer is naive about her dynamic inconsistency, the uniquely optimal dynamic mechanism is to sell a "loot box" that delivers the good with some constant probability in each period. Until she finally gets the good, the consumer always naively believes she will "try her luck" just one last time. In contrast, if the buyer is sophisticated, the uniquely optimal dynamic mechanism includes a "pity system", in which after successive failures in getting the good from all previous loot boxes, the buyer can purchase the good at full price.
    Date: 2022–08
  9. By: Bester, Helmut; Sákovics, József
    Abstract: We investigate the welfare effect of increasing competition in an anonymous two-sided matching market, where matched pairs play an infinitely repeated Prisoner's Dilemma. Higher matching efficiency is usually considered detrimental as it creates stronger incentives for defection. We point out, however, that a reduction in matching frictions also increases welfare because more agents find themselves in a cooperative relationship. We characterize the conditions for which increasing competition increases overall welfare. In particular, this is always the case when the incentives for defection are high.
    Keywords: Cooperation,Prisoner's Dilemma,Competition,Welfare,Matching,Trust Building
    JEL: C72 C73 C78 D6
    Date: 2022
  10. By: Streekstra, Leanne (Research Centre of QSMS, Faculty of Economic and Social Sciences); Trudeau, Christian (Department of Economics, University of Windsor)
    Abstract: We extend the familiar shortest path problem by supposing that agents have demands over multiple periods. This potentially allows agents to combine their paths if their demands are complementary; for instance if one agent only needs a connection to the source in the summer while the other requires it only in the winter. We not only show that the resulting cost sharing problem always generates a totally balanced game, regardless of the number of agents and periods, the cost structure or the demand profile, but that all totally balanced games are representable as MSP problems. We then exploit the fact that the model encompasses many well-studied problems to obtain or reobtain balancedness and total-balancedness results for source-connection problems, market problems and minimum coloring problems.
    Keywords: shortest path; demand over multiple periods; cooperative game; core; total-balancedness; source-connection; assignment.
    JEL: C71 D63
    Date: 2022–07–15

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