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on Economic Design |
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Issue of 2023‒05‒15
nine papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Eric Budish; Peter Cramton; Albert S. Kyle; Jeongmin Lee; David Malec |
| Abstract: | We introduce and analyze a new market design for trading financial assets. The design allows traders to directly trade any user-defined linear combination of assets. Orders for such portfolios are expressed as downward-sloping piecewise-linear demand curves with quantities as flows (shares/second). Batch auctions clear all asset markets jointly in discrete time. Market-clearing prices and quantities are shown to exist, despite the wide variety of preferences that can be expressed. Calculating prices and quantities is shown to be computationally feasible. Microfoundations are provided to show that traders can implement optimal strategies using portfolio orders. We discuss several potential advantages of the new market design, arising from the combination of discrete time and continuous prices and quantities (the most widely used alternative has these reversed) and the novel approach to trading portfolios of assets. |
| JEL: | D44 D47 D53 D82 G1 G2 G23 L13 L5 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31098&r=des |
| By: | Dirk Bergemann; Alessandro Bonatti |
| Abstract: | We analyze digital markets where a monopolist platform uses data to match multiproduct sellers with heterogeneous consumers who can purchase both on and off the platform. The platform sells targeted ads to sellers that recommend their products to consumers and reveals information to consumers about their values. The revenue-optimal mechanism is a managed advertising campaign that matches products and preferences efficiently. In equilibrium, sellers offer higher qualities at lower unit prices on than off the platform. Privacy-respecting data-governance rules such as organic search results or federated learning can lead to welfare gains for consumers. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.07653&r=des |
| By: | Dirk Bergemann; Alessandro Bonatti; Nicholas Wu |
| Abstract: | We develop an auction model for digital advertising. A monopoly platform has access to data on the value of the match between advertisers and consumers. The platform support bidding with additional information and increase the feasible surplus for on-platform matches. Advertisers jointly determine their pricing strategy both on and off the platform, as well as their bidding for digital advertising on the platform. We compare a data-augmented second-price auction and a managed campaign mechanism. In the data-augmented auction, the bids by the advertisers are informed by the data of the platform regarding the value of the match. This results in a socially efficient allocation on the platform, but the advertisers increase their product prices off the platform to be more competitive on the platform. In consequence, the allocation off the platform is inefficient due to excessively high product prices. The managed campaign mechanism allows advertisers to submit budgets that are then transformed into matches and prices through an autobidding algorithm. Compared to the data-augmented second-price auction, the optimal managed campaign mechanism increases the revenue of the digital platform. The product prices off the platform increase and the consumer surplus decreases. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.08432&r=des |
| By: | Bolotnyy, Valentin (Hoover Institution, Stanford U); Vasserman, Shoshana (Stanford U) |
| Abstract: | Most U.S. government spending on highways and bridges is done through “scaling†procurement auctions, in which private construction firms submit unit price bids for each piece of material required to complete a project. Using data on bridge maintenance projects undertaken by the Massachusetts Department of Transportation (MassDOT), we present evidence that firm bidding behavior in this context is consistent with opti- mal skewing under risk aversion: firms limit their risk exposure by placing lower unit bids on items with greater uncertainty. We estimate the amount of uncertainty in each auction, and the distribution of bidders’ private costs and risk aversion. Simulating equilibrium item-level bids under counterfactual settings, we estimate the fraction of project spending that is due to risk and evaluate auction mechanisms under considera- tion by policymakers. We find that scaling auctions provide substantial savings relative to lump sum auctions and show how our framework can be used to evaluate alternative auction designs. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3887&r=des |
| By: | Alex Gershkov; Andreas Kleiner; Benny Moldovanu; Xianwen Shi |
| Abstract: | We generalize the standard, private values voting model with single-peaked preferences and incomplete information by introducing interdependent preferences. Our main results show how standard mechanisms that are outcome-equivalent and implement the Con- dorcet winner under complete information or under private values yield starkly di¤erent outcomes if values are interdependent. We also propose a new notion of Condorcet winner under incomplete information and interdependent preferences, and discuss its implemen- tation. The new phenomena in this paper arise because di¤erent voting rules (including dynamic ones) induce di¤erent processes of information aggregation and learning. |
| Keywords: | Voting, interdependent values, Condorcet winner |
| JEL: | D72 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_414&r=des |
| By: | Alex Gershkov; Benny Moldovanu; Xianwen Shi |
| Abstract: | We study when the voting outcome is independent of the order of issues put up for vote in a spacial multi-dimensional voting model. Agents equipped with norm- based preferences that use a norm to measure the distance from their ideal policy vote sequentially and issue-by-issue via simple majority. If the underlying norm is generated by an inner-product – such as the Euclidean norm – then the voting outcome is order independent if and only if the issues are orthogonal. If the underlying norm is a general one, then the outcome is order independent if the basis defining the issues to be voted upon satisfies the following property: for any vector in the basis, any linear combination of the other vectors is Birkhoff-James orthogonal to it. We prove a partial converse in the case of two dimensions: if the underlying basis fails the above property then the voting order matters. Finally, despite existence results for the two-dimensional case and for the general lp case, we show that non-existence of bases with the above property is generic. |
| Keywords: | Sequential voting, order independence, norm-based preferences |
| JEL: | D72 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_413&r=des |
| By: | Yasunori Okumura |
| Abstract: | We consider the social welfare function a la Arrow, where some voters are not qualified to evaluate some alternatives. Thus, the inputs of the social welfare function are the preferences of voters on the alternatives that they are qualified to evaluate only. Our model is a generalization of the peer rating model, where each voter evaluates the other voters (except for himself/herself). We demonstrate the following three impossibility results. First, if a transitive valued social welfare function satisfies independence of irrelevant alternatives and the Pareto principle, then a dictator who is qualified to evaluate all alternatives exists. Second, a transitive valued function satisfying the Pareto principle exists if and only if at least one voter is qualified to evaluate all alternatives. Finally, if no voter is qualified to evaluate all alternatives, then under a transitive valued social welfare function satisfying the weak Pareto principle and independence of irrelevant alternatives, all alternatives are indifferent for any preference profile of voters. |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2304.06961&r=des |
| By: | David Lowing (Kyushu University); Makoto Yokoo (Kyushu University) |
| Abstract: | A Sharing value for transferable utility games distributes the Harsanyi dividend of each coalition among the players in the coalition's support. Such distribution is done according to a certain sharing system that determines the Sharing value. In this paper, we extend Sharing values to multi-choice games. Multi-choice games are a generalization of transferable utility games in which players have several activity levels. Unlike in transferable utility games, there is no straightforward way to interpret the support of a coalition in a multi-choice game. This makes it more tedious to distribute the Harsanyi dividend of a multi-choice coalition. We consider three possible interpretations of the support of a multi-choice coalition. Based on these interpretations, we derive three families of Sharing values for multi-choice games. To conduct this study, we discuss novel and classical axioms for multi-choice games. This allows us to provide an axiomatic foundation for each of these families of values. |
| Keywords: | Multi-choice games, Sharing values, Harsanyi set |
| Date: | 2023–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-04018735&r=des |
| By: | Xi Chen; Binghui Peng |
| Abstract: | We study the complexity of finding an approximate (pure) Bayesian Nash equilibrium in a first-price auction with common priors when the tie-breaking rule is part of the input. We show that the problem is PPAD-complete even when the tie-breaking rule is trilateral (i.e., it specifies item allocations when no more than three bidders are in tie, and adopts the uniform tie-breaking rule otherwise). This is the first hardness result for equilibrium computation in first-price auctions with common priors. On the positive side, we give a PTAS for the problem under the uniform tie-breaking rule. |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2303.16388&r=des |