nep-des New Economics Papers
on Economic Design
Issue of 2022‒10‒17
twelve papers chosen by
Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford

  1. Aiding Applicants: Leveling the Playing Field within the Immediate Acceptance Mechanism By Basteck, Christian; Mantovani, Marco
  2. Equity-efficiency trade-off in quasi-linear environments By Piotr Dworczak
  3. Efficient Full Implementation via Transfers: Uniqueness and Sensitivity in Symmetric Environments By Mariann Ollár; Antonio Penta
  4. The optimality of (stochastic) veto delegation By Xiaoxiao Hu; Haoran Lei
  5. Competitive equilibrium and the double auction By Itzhak Rasooly
  6. Discriminatory Auction Design for Renewable Energy By Mats Kröger; Karsten Neuhoff; Jörn C. Richstein
  7. Market Effects of Sponsored Search Auctions By Massimo Motta; Antonio Penta
  8. Weighted Envy-Freeness for Submodular Valuations By Luisa Montanari; Ulrike Schmidt-Kraepelin; Warut Suksompong; Nicholas Teh
  9. Optimal Non-Linear Pricing with Data-Sensitive Consumers By Krähmer, Daniel; Strausz, Roland
  10. Competition under Incomplete Contracts and the Design of Procurement Policies By Rodrigo Carril; Andres Gonzalez-Lira; Michael S. Walker
  11. Preference Restrictions for Simple and Strategy-Proof Rules: Local and Weakly Single-Peaked Domains By Agustín G Bonifacio; Jordi Massó; Pablo Neme
  12. Lexicographic Composition of Choice Functions By Sean Horan; Vikram Manjunath

  1. By: Basteck, Christian (WZB Berlin); Mantovani, Marco (University of Milan-Bicocca)
    Abstract: In school choice problems, the widely used manipulable Immediate Acceptance mechanism (IA) disadvantages unsophisticated applicants, but may ex-ante Pareto dominate any strategy-proof alternative. In these cases, it may be preferable to aid applicants within IA, rather than to abandon it. In a laboratory experiment, we first document a substantial gap in strategy choices and outcomes between subjects of higher and lower cognitive ability under IA. We then test whether disclosing information on past applications levels the playing field. The treatment is effective in partially reducing the gap between applicants of above- and below-median cognitive ability and in curbing ability segregation across schools, but may leave the least able applicants further behind.
    Keywords: laboratory experiment; school choice; immediate acceptance; strategy-proofness; cognitive ability; mechanism design;
    JEL: C78 C91 D82 I24
    Date: 2021–11–29
  2. By: Piotr Dworczak (Northwestern University; Group for Research in Applied Economics (GRAPE))
    Abstract: I study a simple equity-efficiency problem: A designer allocates a fixed amount of money to a population of agents differing in privately observed marginal values for money. She can only screen agents by asking them to burn utility (through some socially wasteful activity). I show that giving a lump-sum payment is outperformed by a mechanism with utility burning when the agent with the lowest money-denominated cost of engaging in the wasteful activity has an expected value for money that exceeds the average value by more than a factor of two.
    JEL: C78 D47 D61 D63 D82
    Date: 2022
  3. By: Mariann Ollár; Antonio Penta
    Abstract: We study efficient implementation via transfers in unique rationalizable strategies, in environments that are symmetric in two senses: first, agents display the same total level of preference interdependence; second, types are commonly known to be drawn from distributions with identical (but unknown) means. We characterize the conditions under which full efficient implementation is possible via direct mechanisms, as well as the transfer schemes which achieve it whenever possible. We discuss a further robustness property, robustness to mistaken play, and show that it uniquely selects the transfer scheme which induces an even redistribution of strategic externalities.
    Keywords: efficient implementation, full implementation, interdependent values, loading transfers, equal-externality transfers, Rationalizability, robustness, sensitivity analysis, strategic externalities, symmetric environments, uniqueness
    JEL: D62 D82 D83
    Date: 2022–01
  4. By: Xiaoxiao Hu; Haoran Lei
    Abstract: We (re-)examine the optimal delegation problem between a principal and an agent, assuming that the latter has state-independent preferences. In this setting, the widely-studied interval delegation fails to elicit the agent's private information. We show that we can restrict attention to stochastic veto mechanisms in searching for a principal's preferred mechanism. When the optimal veto mechanism is valuable, the principal approves all proposals below some threshold and the veto probability increases as the proposed option gets more extreme. Our result provides grounds for the veto delegation pervasive in various organizations.
    Date: 2022–08
  5. By: Itzhak Rasooly
    Abstract: In this paper, we revisit the common claim that double auctions necessarily generate competitive equilibria. We begin by observing that competitive equilibrium has some counterintuitive implications: specifically, it predicts that monotone shifts in the value distribution can leave prices unchanged. Using experiments, we then test whether these implications are borne out by the data. We find that in double auctions with stationary value distributions, the resulting prices can be far from competitive equilibria. We also show that the effectiveness of our counterexamples is blunted when traders can leave without replacement as time progresses. Taken together, these findings suggest that the `Marshallian path' is crucial for generating equilibrium prices in double auctions.
    Date: 2022–09
  6. By: Mats Kröger; Karsten Neuhoff; Jörn C. Richstein
    Abstract: Designing auctions that favor low resource quality installations allows countries to geographically diversify their renewable energy production, while lowering payments to low-cost producers. In this paper, we develop a stylized model showing that a discriminatory auction design favoring low-wind-yield locations leads to a tradeoff between production costs and producer rent and that the scheme can lower consumer costs even without considering the positive externalities of distributed generation. We explore the influence of the heterogeneity of production costs, the strength of the adjustment, and the regulator’s knowledge about cost structures. Through a numerical analysis of the German reference yield model, we estimate that at current auction levels intra-technology discrimination through the reference yield model leads to a reduction of consumer costs of around 24.8 billion Euro or 13% between 2023 and 2030.
    Keywords: Climate policy, auctions, renewable energy, onshore wind power, reference yield model
    JEL: D44 Q42 Q48 Q54
    Date: 2022
  7. By: Massimo Motta; Antonio Penta
    Abstract: We investigate the market effects of brand search advertising, within a model where two firms simultaneously choose the price of their (differentiated) product and the bids for the advertising auction which is triggered by own and rival's brand keywords search; and where there exist sophisticated/attentive consumers (who look for any available information on their screen) and naive/inattentive consumers (who only look at the top link of their screen), both aware of either brand's characteristics and price. Relative to a benchmark where only organic search exists, in any symmetric equilibrium each firm wins its own brand auction, and advertising has detrimental effects on welfare: (i) the sponsored link crowds out the rival's organic link, thus reducing competition and choice, and leading to price increases; (ii) the payment of the rival's bid (may) raise marginal cost, also contributing to raise market prices. Under extreme asymmetry (there is an incumbent and an unknown new entrant), we do find that the market effect of brand bidding might be beneficial, if the search engine does not list the entrant's link in organic search, and the share of the sophisticated consumers in the economy is large enough for an equilibrium in which the entrant wins the advertising auction on the search for the incumbent's brand to exist.
    Keywords: digital advertising, auctions, oligopoly, search engines, brands, horizontal agreements
    JEL: D44 L13 L4
    Date: 2022–06
  8. By: Luisa Montanari; Ulrike Schmidt-Kraepelin; Warut Suksompong; Nicholas Teh
    Abstract: We investigate the fair allocation of indivisible goods to agents with possibly different entitlements represented by weights. Previous work has shown that guarantees for additive valuations with existing envy-based notions cannot be extended to the case where agents have matroid-rank (i.e., binary submodular) valuations. We propose two families of envy-based notions for matroid-rank and general submodular valuations, one based on the idea of transferability and the other on marginal values. We show that our notions can be satisfied via generalizations of rules such as picking sequences and maximum weighted Nash welfare. In addition, we introduce welfare measures based on harmonic numbers, and show that variants of maximum weighted harmonic welfare offer stronger fairness guarantees than maximum weighted Nash welfare under matroid-rank valuations.
    Date: 2022–09
  9. By: Krähmer, Daniel (University of Bonn); Strausz, Roland (HU Berlin)
    Abstract: We introduce consumers with intrinsic privacy preferences into the monopolistic non-linear pricing model. Next to classical consumers, there is a share of data-sensitive consumers who incur a privacy cost if their purchase reveals information to the monopolist. The monopolist discriminates between privacy types using privacy mechanisms which consist of a direct mechanism and a privacy option, targeting, respectively, classical and data-sensitive consumers. We show that a privacy mechanism is optimal if privacy costs are large and that it yields classical consumers a higher utility than data-sensitive consumers with the same valuation. If, by contrast, privacy preferences are public information, data-sensitive consumers with a low valuation obtain a strictly higher utility than classical consumers. With public privacy preferences, data-sensitive consumers and the monopolist are better off, whereas classical consumers are worse off. Our results are relevant for policy measures that target the data-awareness of consumers, such as the European GDPR.
    Keywords: optimal non-linear pricing; privacy; monopolistic screening;
    Date: 2021–11–19
  10. By: Rodrigo Carril; Andres Gonzalez-Lira; Michael S. Walker
    Abstract: We study the effects of intensifying competition for contracts in the context of U.S. Defense procurement. Conceptually, opening contracts up to bids by more participants leads to lower awarding prices, but may hinder buyers’ control over non-contractible characteristics of prospective contractors. Leveraging a regulation that mandates agencies to publicize certain contract opportunities, we document that expanding the set of bidders reduces award prices, but deteriorates post-award performance, resulting in more cost overruns and delays. To further study the scope of this tension, we develop and estimate a model in which the buyer endogenously chooses the intensity of competition, invited sellers decide on auction participation and bidding, and the winner executes the contract ex-post. Model estimates indicate substantial heterogeneity in ex-post performance across contractors, and show that simple adjustments to the current regulation that account for adverse selection could provide 2 percent of savings in procurement spending, or $104 million annually.
    Keywords: Procurement, competition, auctions, incomplete contracts
    JEL: D22 D44 D73 H57 L13 L14
    Date: 2022–03
  11. By: Agustín G Bonifacio; Jordi Massó; Pablo Neme
    Abstract: We show that if a rule is strategy-proof, unanimous, anonymous and tops-only, then the preferences in its domain have to be local and weakly single-peaked, relative to a family of partial orders obtained from the rule by confronting at most three alternatives with distinct levels of support. Moreover, if this domain is enlarged by adding a non local and weakly single-peaked preference, then the rule becomes manipulable. We finally show that local and weak single-peakedness constitutes a weakening of known and well-studied restricted domains of preferences.
    Keywords: single-peakedness, strategy-proofness, anonymity, unanimity, tops-onlyness
    JEL: D71
    Date: 2022–02
  12. By: Sean Horan; Vikram Manjunath
    Abstract: Lexicographic composition is a natural way to build an aggregate choice function from component choice functions. As the name suggests, the components are ordered and choose sequentially. The sets that subsequent components select from are constrained by the choices made by earlier choice functions. The specific constraints affect whether properties like path independence are preserved. For several domains of inputs, we characterize the constraints that ensure such preservation.
    Date: 2022–09

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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