nep-des New Economics Papers
on Economic Design
Issue of 2023‒01‒09
eleven papers chosen by
Alex Teytelboym
University of Oxford

  1. Matching with Incomplete Preferences By Aditya Kuvalekar
  2. Non-standard choice in matching markets By Caspari, Gian; Khanna, Manshu
  3. The Market Design Approach to Teacher Assignment: Evidence from Ecuador By Elacqua, Gregory; Westh Olsen, Anne Sofie; Velez-Ferro, Santiago
  4. Arbiter Assignment By Mustafa Oguz Afacan; Nejat Anbarci; Ozgur Kıbrıs
  5. On the foundations of ex post incentive compatible mechanisms By Takuro Yamashita; Shuguang Zhu
  6. Motivated beliefs in auctions By Riehm, Tobias
  7. Comparing Crowdfunding Mechanisms: Introducing the Generalized Moulin-Shenker Mechanism By Andrej Woerner; Sander Onderstal; Arthur Schram
  8. Subsidy and Taxation in All-Pay Auctions under Incomplete By Aner Sela; Yizhaq Minchuk
  9. Decentralized Matching at Senior-Level: Stability and Incentives By AyÅŸe Yazici
  10. Optimal School Design By Jacopo Bizzotto; Adrien Vigier
  11. Distributionally Robust Optimal Allocation with Costly Verification By Halil \.Ibrahim Bayrak; \c{C}a\u{g}{\i}l Ko\c{c}yi\u{g}it; Daniel Kuhn; Mustafa \c{C}elebi P{\i}nar

  1. By: Aditya Kuvalekar
    Abstract: I study a two-sided marriage market in which agents have incomplete preferences -- i.e., they find some alternatives incomparable. The strong (weak) core consists of matchings wherein no coalition wants to form a new match between themselves, leaving some (all) agents better off without harming anyone. The strong core may be empty, while the weak core can be too large. I propose the concept of the ``compromise core'' -- a nonempty set that sits between the weak and the strong cores. Similarly, I define the men-(women-) optimal core and illustrate its benefit in an application to India's engineering college admissions system.
    Date: 2022–12
  2. By: Caspari, Gian; Khanna, Manshu
    Abstract: We explore the possibility of designing matching mechanisms that can accommodate non-standard choice behavior. We pin down the necessary and sufficient conditions on participants' choice behavior for the existence of stable and incentive compatible mechanisms. Our results imply that well-functioning matching markets can be designed to adequately accommodate a plethora of choice behaviors, including the standard behavior that is consistent with preference maximization. To illustrate the significance of our results in practice, we show that a simple modification in a commonly used matching mechanism enables it to accommodate non-standard choice behavior.
    Keywords: Matching Theory,Market Design,Stability,College Admissions Market
    JEL: C62 C78 D47 D9
    Date: 2022
  3. By: Elacqua, Gregory; Westh Olsen, Anne Sofie; Velez-Ferro, Santiago
    Abstract: We study the advantages, trade-offs, and challenges of employing a centralized rule to determine the allocation of teachers to schools. Data come from the centralized teacher assignment program in Ecuador, "Quiero ser Maestro," conducted by the Ministry of Education. Notably, in 2019 the program transitioned from a priority based algorithm to a strategy proof mechanism, similar to the change introduced in Boston in 2005 to assign students to schools. Using the reported preferences, we conduct a counterfactual analysis and nd substantive evidence that the adjustment in algorithm resulted in greater efficiency for the school system. However, in contrast to the Boston case, we nd the benefits stem from increasing the competition for positions among teachers, rather than by the introduction of a strategy-proof mechanism.
    Keywords: Education;Educational Institution;Teacher Distribution
    JEL: I28 H39 H41 M51
    Date: 2021–12
  4. By: Mustafa Oguz Afacan (Sabancı University); Nejat Anbarci (Durham University); Ozgur Kıbrıs (Sabancı University)
    Abstract: In dispute resolution, arbitrator assignments are decentralized and also incorporate parties’ preferences, in total contrast to referee assignments in sports. We suggest that there can be gains (i) in dispute resolution from centralizing the allocation by bundling the newly arriving cases, and (ii) in sports from incorporating teams’ preferences. To that end, we introduce a class of Arbiter Assignment Problems where a set of matches (e.g., disputes or games), each made up of two agents, are to be assigned arbiters (e.g., arbitrators or referees). On this domain, the question of how agents in a match should compromise becomes critical. To evaluate the value of an arbiter for a match, we introduce the (Rawlsian) notion of depth, defined as the arbiter’s worst position in the two agents’ rankings. Depth optimal assignments minimize depth over matches, and they are Pareto optimal. We first introduce and analyze depth optimal (and fair) mechanisms. We then propose and study strategy-proof mechanisms.
    Keywords: Arbiter, arbitration, dispute resolution, assignment, mechanism, depth optimality, fairness, unanimity compromise, strategy-proofness, referee, sports, football.
    JEL: C78 J44
    Date: 2022–12
  5. By: Takuro Yamashita (TSE-R - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Shuguang Zhu (Shanghai University of Finance and Economics)
    Abstract: In private-value auction environments, Chung and Ely (2007) establish maxmin and Bayesian foundations for dominant-strategy mechanisms. We first show that similar foundation results for ex post mechanisms hold true even with interdependent values if the interdependence is only cardinal. This includes, for example, the one-dimensional environments of Dasgupta and Maskin (2000) and Bergemann and Morris (2009b). Conversely, if the environment exhibits ordinal interdependence, which is typically the case with multi-dimensional environments (e.g., a player's private information)
    Date: 2022–11
  6. By: Riehm, Tobias
    Abstract: In auctions bidders are usually assumed to have rational expectations with regards to their winning probability. However, experimental and empirical evidence suggests that agent's expectations depend on direct utility stemming from expectations, resulting in optimism or pessimism. Optimism increases ex ante savoring, while pessimism leads to less disappointment ex post. Hence, optimal expectations depend on the time left until the uncertainty is resolved, i.e. the time one can savor ex ante by being (too) optimistic. Applying the decision theory model of Gollier and Muermann (2010) to first price auctions, I show that by decreasing the time between bids and revelation of results, the auctioneer can induce bidders to forego optimism, leading to more aggressive bids and thereby higher revenues for the auctioneer. Finally I test these predictions experimentally, finding no evidence for my theoretical predictions.
    Keywords: Auctions,Experiment,Motivated Beliefs
    JEL: D44 C91
    Date: 2022
  7. By: Andrej Woerner; Sander Onderstal; Arthur Schram
    Abstract: For reward-based crowdfunding, we introduce the strategy-proof Generalized Moulin-Shenker mechanism (GMS) and compare its performance to the prevailing All-Or-Nothing mechanism (AON). Theoretically, GMS outperforms AON in equilibrium profit and funding success. We test these predictions experimentally, distinguishing between a sealed-bid and a dynamic version of GMS. We find that the dynamic GMS outperforms the sealed-bid GMS. It performs better than AON when the producer aims at maximizing funding success. For crowdfunding in practice, this implies that the current standard of financing projects could be improved upon by implementing a crowdfunding mechanism that is similar to the dynamic GMS.
    Keywords: crowdfunding, market design, strategy-proofness, laboratory experiment
    JEL: C92 D82 G29
    Date: 2022
  8. By: Aner Sela (BGU); Yizhaq Minchuk (Shamoon College of Engineering)
    Keywords: All-pay auctions, subsidy, taxation
    JEL: C72 D44 H25
    Date: 2022
  9. By: AyÅŸe Yazici (Department of Economics, University of Durham)
    Abstract: We consider senior-level labor markets and study a decentralized game where firms can fire a worker whenever they wish to make an offer to another worker. The game starts with initial matching of firms and workers and proceeds with a random sequence of job offers. The outcome of the game depends on the ran- dom sequence according to which firms make offers and therefore is a probability distribution over the set of matchings. We provide theoretical support for the successful functioning of decentralized matching markets in a setup with myopic workers. We then identify a lower bound on outcomes that are achievable through strategic behavior. We find that in equilibrium either any sequence of offers leads to the same matching or workers (firms) do not agree on what matching is the worst (best) among all possible realizations of the outcome. This implies that workers can always act to avoid a possible realization that they unanimously find undesirable. Hence, a well-known result for centralized matching at the entry- level carries over to matching at the senior-level albeit without the intervention of a mediator.
    Keywords: Senior-level markets; Stability; Random matching
    JEL: C78 J44
    Date: 2022–01
  10. By: Jacopo Bizzotto (Oslo Business School - OsloMet); Adrien Vigier (University of Oxford - Department of Economics)
    Abstract: We consider a population of students with heterogeneous characteristics, and examine the dual design problem consisting of (a) allocating students to schools and (b) choosing how to grade students in school, with a view to optimizing students' incentives to work hard. We show that any optimal school design exhibits stratification, and more lenient grading at the top-tier schools than at the bottom-tier schools. Our results highlight a novel trade-off between the size of the pie and its equal division in the context of school design.
    Keywords: Education, Moral Hazard, Grading, Peer Effects, Stratification
    JEL: D02 D82 D86
    Date: 2021–06–30
  11. By: Halil \.Ibrahim Bayrak; \c{C}a\u{g}{\i}l Ko\c{c}yi\u{g}it; Daniel Kuhn; Mustafa \c{C}elebi P{\i}nar
    Abstract: We consider the mechanism design problem of a principal allocating a single good to one of several agents without monetary transfers. Each agent desires the good and uses it to create value for the principal. We designate this value as the agent's private type. Even though the principal does not know the agents' types, she can verify them at a cost. The allocation of the good thus depends on the agents' self-declared types and the results of any verification performed, and the principal's payoff matches her value of the allocation minus the costs of verification. It is known that if the agents' types are independent, then a favored-agent mechanism maximizes her expected payoff. However, this result relies on the unrealistic assumptions that the agents' types follow known independent probability distributions. In contrast, we assume here that the agents' types are governed by an ambiguous joint probability distribution belonging to a commonly known ambiguity set and that the principal maximizes her worst-case expected payoff. We study support-only ambiguity sets, which contain all distributions supported on a rectangle, Markov ambiguity sets, which contain all distributions in a support-only ambiguity set satisfying some first-order moment bounds, and Markov ambiguity sets with independent types, which contain all distributions in a Markov ambiguity set under which the agents' types are mutually independent. In all cases we construct explicit favored-agent mechanisms that are not only optimal but also Pareto-robustly optimal.
    Date: 2022–11

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