
on Economic Design 
Issue of 2023‒01‒09
eleven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford 
By:  Aditya Kuvalekar 
Abstract:  I study a twosided 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 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2212.02613&r=des 
By:  Caspari, Gian; Khanna, Manshu 
Abstract:  We explore the possibility of designing matching mechanisms that can accommodate nonstandard 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 wellfunctioning 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 nonstandard choice behavior. 
Keywords:  Matching Theory,Market Design,Stability,College Admissions Market 
JEL:  C62 C78 D47 D9 
Date:  2022 
URL:  http://d.repec.org/n?u=RePEc:zbw:zewdip:22054&r=des 
By:  Elacqua, Gregory; Westh Olsen, Anne Sofie; VelezFerro, Santiago 
Abstract:  We study the advantages, tradeoffs, 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 strategyproof mechanism. 
Keywords:  Education;Educational Institution;Teacher Distribution 
JEL:  I28 H39 H41 M51 
Date:  2021–12 
URL:  http://d.repec.org/n?u=RePEc:idb:brikps:11854&r=des 
By:  Mustafa Oguz Afacan (SabancÄ± University); Nejat Anbarci (Durham University); Ozgur KÄ±brÄ±s (SabancÄ± University) 
Abstract:  In dispute resolution, arbitrator assignments are decentralized and also incorporate partiesâ€™ 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 teamsâ€™ 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 arbiterâ€™s worst position in the two agentsâ€™ 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 strategyproof mechanisms. 
Keywords:  Arbiter, arbitration, dispute resolution, assignment, mechanism, depth optimality, fairness, unanimity compromise, strategyproofness, referee, sports, football. 
JEL:  C78 J44 
Date:  2022–12 
URL:  http://d.repec.org/n?u=RePEc:dur:durham:2022_02&r=des 
By:  Takuro Yamashita (TSER  Toulouse School of Economics  UT1  Université Toulouse 1 Capitole  Université Fédérale Toulouse MidiPyrénées  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 privatevalue auction environments, Chung and Ely (2007) establish maxmin and Bayesian foundations for dominantstrategy 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 onedimensional environments of Dasgupta and Maskin (2000) and Bergemann and Morris (2009b). Conversely, if the environment exhibits ordinal interdependence, which is typically the case with multidimensional environments (e.g., a player's private information) 
Date:  2022–11 
URL:  http://d.repec.org/n?u=RePEc:hal:journl:hal03863573&r=des 
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 
URL:  http://d.repec.org/n?u=RePEc:zbw:zewdip:22062&r=des 
By:  Andrej Woerner; Sander Onderstal; Arthur Schram 
Abstract:  For rewardbased crowdfunding, we introduce the strategyproof Generalized MoulinShenker mechanism (GMS) and compare its performance to the prevailing AllOrNothing mechanism (AON). Theoretically, GMS outperforms AON in equilibrium profit and funding success. We test these predictions experimentally, distinguishing between a sealedbid and a dynamic version of GMS. We find that the dynamic GMS outperforms the sealedbid 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, strategyproofness, laboratory experiment 
JEL:  C92 D82 G29 
Date:  2022 
URL:  http://d.repec.org/n?u=RePEc:ces:ceswps:_10081&r=des 
By:  Aner Sela (BGU); Yizhaq Minchuk (Shamoon College of Engineering) 
Keywords:  Allpay auctions, subsidy, taxation 
JEL:  C72 D44 H25 
Date:  2022 
URL:  http://d.repec.org/n?u=RePEc:bgu:wpaper:2204&r=des 
By:  AyÅŸe Yazici (Department of Economics, University of Durham) 
Abstract:  We consider seniorlevel 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 wellknown result for centralized matching at the entry level carries over to matching at the seniorlevel albeit without the intervention of a mediator. 
Keywords:  Seniorlevel markets; Stability; Random matching 
JEL:  C78 J44 
Date:  2022–01 
URL:  http://d.repec.org/n?u=RePEc:dur:durham:2022_01&r=des 
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 toptier schools than at the bottomtier schools. Our results highlight a novel tradeoff 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 
URL:  http://d.repec.org/n?u=RePEc:oml:wpaper:202103&r=des 
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' selfdeclared 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 favoredagent 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 worstcase expected payoff. We study supportonly ambiguity sets, which contain all distributions supported on a rectangle, Markov ambiguity sets, which contain all distributions in a supportonly ambiguity set satisfying some firstorder 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 favoredagent mechanisms that are not only optimal but also Paretorobustly optimal. 
Date:  2022–11 
URL:  http://d.repec.org/n?u=RePEc:arx:papers:2211.15122&r=des 