nep-des New Economics Papers
on Economic Design
Issue of 2023‒03‒20
six papers chosen by
Alex Teytelboym
University of Oxford

  1. Revenue Maximization with Partially Verifiable Information By Marco Reuter
  2. Nonparametric estimation of sponsored search auctions and impacts of ad quality on search revenue By Dongwoo Kim; Pallavi Pal
  3. Bicriteria Multidimensional Mechanism Design with Side Information By Maria-Florina Balcan; Siddharth Prasad; Tuomas Sandholm
  4. Why Do Students Lie and Should We Worry? An Analysis of Non-truthful Reporting By Emil Chrisander; Andreas Bjerre-Nielsen
  5. A Strategic Tax Mechanism By Giorgos Stamatopoulos
  6. Fairer Shootouts in Soccer: The m-n Rule By Brams, Steven; Ismail, Mehmet S.; Kilgour, Marc

  1. By: Marco Reuter
    Abstract: I consider a seller selling a good to bidders with two-dimensional private information: their valuation for a good and their characteristic. While valuationsare non-verifiable, characteristics are partially verifiable and convey information about the distribution of a bidder's valuation. I derive the revenue-maximizing mechanism and show that it can be implemented by introducing a communication stage before an auction. I show that granting bidders a right to remain anonymous, i.e., to refuse participation in the communication stage, leaves the optimal mechanism unchanged and provides no benefits for the bidders.
    Keywords: Mechanism Design, Auctions, Partially Verifiable Types, Communication
    JEL: D44 D82 D83
    Date: 2023–02
  2. By: Dongwoo Kim; Pallavi Pal
    Abstract: This paper presents an empirical model of sponsored search auctions in which advertisers are ranked by bid and ad quality. We introduce a new nonparametric estimator for the advertiser’s ad value and its distribution under the ‘incomplete information’ assumption. The ad value is characterized by a tractable analytical solution given observed auction parameters. Using Yahoo! search auction data, we estimate value distributions and study the bidding behavior across product categories. We find that advertisers shade their bids more when facing less competition. We also conduct counterfactual analysis to evaluate the impact of score squashing (ad quality raised to power θ
    Date: 2023–03–06
  3. By: Maria-Florina Balcan; Siddharth Prasad; Tuomas Sandholm
    Abstract: We develop a versatile new methodology for multidimensional mechanism design that incorporates side information about agent types with the bicriteria goal of generating high social welfare and high revenue simultaneously. Side information can come from a variety of sources -- examples include advice from a domain expert, predictions from a machine-learning model trained on historical agent data, or even the mechanism designer's own gut instinct -- and in practice such sources are abundant. In this paper we adopt a prior-free perspective that makes no assumptions on the correctness, accuracy, or source of the side information. First, we design a meta-mechanism that integrates input side information with an improvement of the classical VCG mechanism. The welfare, revenue, and incentive properties of our meta-mechanism are characterized by a number of novel constructions we introduce based on the notion of a weakest competitor, which is an agent that has the smallest impact on welfare. We then show that our meta-mechanism -- when carefully instantiated -- simultaneously achieves strong welfare and revenue guarantees that are parameterized by errors in the side information. When the side information is highly informative and accurate, our mechanism achieves welfare and revenue competitive with the total social surplus, and its performance decays continuously and gradually as the quality of the side information decreases. Finally, we apply our meta-mechanism to a setting where each agent's type is determined by a constant number of parameters. Specifically, agent types lie on constant-dimensional subspaces (of the potentially high-dimensional ambient type space) that are known to the mechanism designer. We use our meta-mechanism to obtain the first known welfare and revenue guarantees in this setting.
    Date: 2023–02
  4. By: Emil Chrisander; Andreas Bjerre-Nielsen
    Abstract: A core aspect in market design is to encourage participants to truthfully report their preferences to ensure efficiency and fairness. Our research paper analyzes the factors that contribute to and the consequences of students reporting non-truthfully in admissions applications. We survey college applicants in Denmark about their perceptions of the admission process and personality to examine recent theories of misreporting preferences. Our analysis reveals that omissions in reports are largely driven by students' pessimistic beliefs about their chances of admission. Moreover, such erroneous beliefs largely account for whether an omission led to a missed opportunity for admission. However, the low frequency of these errors suggests that most non-truthful reports are "white lies" with minimal negative impact. We find a novel role of personality and individual circumstances that co-determine the extent of omissions. We also find that estimates of students' demand are biased if it is assumed that students report truthfully, and demonstrate that this bias can be reduced by making a less restrictive assumption. Our results have implications for the modeling of preferences, information acquisition, and subjective admission beliefs in strategy-proof mechanisms
    Date: 2023–02
  5. By: Giorgos Stamatopoulos (Department of Economics, University of Crete, Greece)
    Abstract: We analyze a novel tax mechanism in imperfectly competitive markets. The government announces an excise tax rate and auctions-off a number of tax exemptions. Namely, it invites the firms in a market to acquire the right to be exempted from the excise tax. The highest bidders are exempted by paying their bids; and all other firms remain subject to it.
    Keywords: commodity tax; tax exemption; auction; entry
    JEL: H25 L13
    Date: 2023–02–02
  6. By: Brams, Steven; Ismail, Mehmet S.; Kilgour, Marc
    Abstract: Winning the coin toss at the end of a tied soccer game gives a team the right to choose whether to kick either first or second on all five rounds of penalty kicks, when each team is allowed one kick per round. There is considerable evidence that the right to make this choice, which is usually to kick first, gives a team a significant advantage. To make the outcome of a tied game fairer, we suggest a rule that handicaps the team that kicks first (A), requiring it to succeed on one more penalty kick than the team that kicks second (B). We call this the m - n rule and, more specifically, propose (m, n) = (5, 4): For A to win, it must successfully kick 5 goals before the end of the round in which B kicks its 4th; for B to win, it must succeed on 4 penalty kicks before A succeeds on 5. If both teams reach (5, 4) on the same round—when they both kick successfully at (4, 3)—then the game is decided by round-by-round “sudden death, ” whereby the winner is the first team to score in a subsequent round when the other team does not. We show that this rule is fair in tending to equalize the ability of each team to win a tied game in a penalty shootout. We also discuss a related rule that precludes the teams from reaching (5, 4) at the same time, obviating the need for sudden death and extra rounds.
    Keywords: Soccer, football, tie game, penalty shootouts, scoring rule
    JEL: C61 C72
    Date: 2023–02

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