nep-des New Economics Papers
on Economic Design
Issue of 2022‒11‒21
three papers chosen by
Alex Teytelboym
University of Oxford

  1. Curbing Price Fluctuations in Cap-and-Trade Auctions By Thomas D. Jeitschko; Pallavi Pal
  2. A Theory of Stable Market Segmentations By Nima Haghpanah; Ron Siegel
  3. An Axiomatic Characterization of Split Cycle By Yifeng Ding; Wesley H. Holliday; Eric Pacuit

  1. By: Thomas D. Jeitschko; Pallavi Pal
    Abstract: In recent years, a significant problem with the carbon credit market has been higher than initially predicted price volatility. It is essential to study the market in a repeated-period dynamic setting to identify the factors enabling high fluctuations in prices. In this paper, we examine the dynamic auction design and propose a method to curb price volatility through a flexible supply cap. The equilibrium analysis shows that modifying the cap on per period supply can decrease price fluctuations. Currently, the government or the auctioneer sets a per-period limit on the supply, which reduces at a fixed rate over time. However, this paper suggests that a flexible cap on the per-period supply would be a better alternative. Specifically, we show that correlating the supply rate with expected future demand results in a more stable price.
    Keywords: dynamic mechanism design, auctions, emissions permits, environmental regulation, climate change
    JEL: D43 L11 L42
    Date: 2022
  2. By: Nima Haghpanah; Ron Siegel
    Abstract: We consider a monopolistic seller in a market that may be segmented. The surplus of each consumer in a segment depends on the price that the seller optimally charges, which depends on the set of consumers in the segment. We study which segmentations may result from the interaction among consumers and the seller. Instead of studying the interaction as a non-cooperative game, we take a reduced-form approach and introduce a notion of stability that any resulting segmentation must satisfy. A stable segmentation is one that, for any alternative segmentation, contains a segment of consumers that prefers the original segmentation to the alternative one. Our main result characterizes stable segmentations as efficient and saturated. A segmentation is saturated if no consumers can be shifted from a segment with a high price to a segment with a low price without the seller optimally increasing the low price. We use this characterization to constructively show that stable segmentations always exist. Even though stable segmentations are efficient, they need not maximize average consumer surplus, and segmentations that maximize average consumer surplus need not be stable. Finally, we relate our notion of stability to solution concepts from cooperative game theory and show that stable segmentations satisfy many of them.
    Date: 2022–10
  3. By: Yifeng Ding; Wesley H. Holliday; Eric Pacuit
    Abstract: A number of rules for resolving majority cycles in elections have been proposed in the literature. Recently, Holliday and Pacuit (Journal of Theoretical Politics 33 (2021) 475-524) axiomatically characterized one such cycle-resolving rule, dubbed Split Cycle: in each majority cycle, discard the majority preferences with the smallest majority margin. They showed that any rule satisfying five standard axioms, plus a weakening of Arrow's Independence of Irrelevant Alternatives (IIA) called Coherent IIA, is refined by Split Cycle. In this paper, we go further and show that Split Cycle is the only rule satisfying the axioms of Holliday and Pacuit together with two additional axioms: Coherent Defeat and Positive Involvement in Defeat. Coherent Defeat states that any majority preference not occurring in a cycle is retained, while Positive Involvement in Defeat is closely related to the well-known axiom of Positive Involvement (as in J. P\'{e}rez, Social Choice and Welfare 18 (2001) 601-616). We characterize Split Cycle not only as a collective choice rule but also as a social choice correspondence, over both profiles of linear ballots and profiles of ballots allowing ties.
    Date: 2022–10

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.