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on Economic Design |
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Issue of 2023‒06‒19
fifteen papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Basteck, Christian; Ehlers, Lars H. |
| Abstract: | We study the random assignment of indivisible objects among a set of agents with strict preferences. Random Serial Dictatorship is known to be only ex-post efficient and there exist mechanisms which Pareto-dominate it ex ante. However, we show that there is no mechanism that is likewise (i) strategy-proof and (ii) boundedly invariant, and that Paretodominates Random Serial Dictatorship. Moreover, the same holds for all mechanisms that are ex-post efficient, strategy-proof, and boundedly invariant: no such mechanism is dominated by any other mechanism that is likewise strategy-proof and boundedly invariant. |
| Keywords: | random assignment, strategy-proofness, ex-post efficiency, bounded invariance |
| JEL: | D63 D70 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2023202&r=des |
| By: | Aram Grigoryan; Markus M\"oller |
| Abstract: | In centralized market mechanisms individuals may not fully observe other participants' type reports. Hence, the mechanism designer may deviate from the promised mechanism without the individuals being able to detect these deviations. In this paper, we develop a general theory of auditability for allocation and social choice problems. We find a stark contrast between the auditabilities of prominent mechanisms: the Immediate Acceptance mechanism is maximally auditable, in a sense that any deviation can always be detected by just two individuals, whereas, on the other extreme, the Deferred Acceptance mechanism is minimally auditable, in a sense that some deviations may go undetected unless some individuals possess full information about everyone's reports. There is a similar contrast between the first-price and the second-price auction mechanisms. Additionally, we give a simple characterization of the majority voting mechanism for social choice problems, and we evaluate the auditability of reserves mechanisms for choice with affirmative action. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.09314&r=des |
| By: | Jerry Anunrojwong; Santiago R. Balseiro; Omar Besbes |
| Abstract: | A seller wants to sell an item to $n$ buyers. The buyer valuations are drawn i.i.d. from a distribution, but the seller does not know this distribution; the seller only knows the support $[a, b]$. To be robust against the lack of knowledge of the environment and buyers' behavior, the seller optimizes over DSIC mechanisms, and measures the worst-case performance relative to an oracle with complete knowledge of buyers' valuations. Our analysis encompasses both the regret and the ratio objectives. For these objectives, we derive an optimal mechanism in closed form as a function of the support and the number of buyers $n$. Our analysis reveals three regimes of support information and a new class of robust mechanisms. i.) With "low" support information, the optimal mechanism is a second-price auction (SPA) with a random reserve, a focal class in the earlier literature. ii.) With "high" support information, we show that second-price auctions are strictly suboptimal, and an optimal mechanism belongs to a novel class of mechanisms we introduce, which we call $\textbf{pooling auctions}$ (POOL); whenever the highest value is above a threshold, the mechanism still allocates to the highest bidder, but otherwise the mechanism allocates to a uniformly random buyer, i.e., pools low types. iii.) With "moderate" support information, a randomization between SPA and POOL is optimal. We also characterize optimal mechanisms within nested central subclasses of mechanisms: standard mechanisms (only allocate to the highest bidder), SPA with random reserve, and SPA with no reserve. We show strict separations across classes, implying that deviating from standard mechanisms is necessary for robustness. Lastly, we show that the same results hold under other distribution classes that capture "positive dependence" (mixture of i.i.d., exchangeable and affiliated), as well as i.i.d. regular distributions. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.09065&r=des |
| By: | Rodney Garratt; David Murphy; Travis D. Nesmith; Xiaopeng Wu |
| Abstract: | Default auctions at central counterparties (or 'CCPs') are critically important to financial stability. However, due to their unique features and challenges, standard auction theory results do not immediately apply. This paper presents a model for CCP default auctions that incorporates the CCP's non-standard objective of maximizing success above a threshold rather than revenue, the key question of who participates in the auction and the potential for information leakage affecting private portfolio valuations. We show that an entry fee, by appropriately inducingmembers to participate or not, can maximize the probability the auction succeeds. The result is novel, both in auction theory and as a mechanism for CCP auction design. |
| Keywords: | Clearinghouse; Derivatives, futures and options; Central counterparties; CCPs; Bidder selection; Auction theory; Default auctions |
| JEL: | G33 D47 G32 D44 G29 |
| Date: | 2023–05–12 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedgfe:2023-33&r=des |
| By: | Maxwell Allman; Itai Ashlagi |
| Abstract: | In many centralized labor markets candidates interview with potential employers before matches are formed through a clearinghouse One prominent example is the market for medical residencies and fellowships, which in recent years has had a large increase in the number of interviews. There have been numerous efforts to reduce the cost of interviewing in these markets using a variety of signalling mechanisms, however, the theoretical properties of these mechanisms have not been systematically studied in models with rich preferences. In this paper we give theoretical guarantees for a variety of mechanisms, finding that these mechanisms must properly balance competition. We consider a random market in which agents' latent preferences are based on observed qualities, personal taste and (ex post) interview shocks and assume that following an interview mechanism a final stable match is generated with respect to preferences over interview partners. We study a novel many-to-many interview match mechanism to coordinate interviews and that with relatively few interviews, when suitably designed, the interview match yields desirable properties. We find that under the interview matching mechanism with a limit of $k$ interviews per candidate and per position, the fraction of positions that are unfilled vanishes quickly with $k$. Moreover the ex post efficiency grows rapidly with $k$, and reporting sincere pre-interview preferences to this mechanism is an $\epsilon$-Bayes Nash equilibrium. Finally, we compare the performance of the interview match to other signalling and coordination mechanisms from the literature. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.11350&r=des |
| By: | Anderson, Edward (University of Sydney Business School, Australia, and Imperial College Business School); Holmberg, Pär (Research Institute of Industrial Economics (IFN)) |
| Abstract: | We study multi-unit auctions where bidders have single-unit demand and asymmetric information. For symmetric equilibria, we identify circumstances where uniform-pricing is better for the auctioneer than pay-as-bid pricing, and where transparency improves the revenue of the auctioneer. An issue with the uniform-price auction is that seemingly collusive equilibria can exist. We show that such outcomes are less likely if the traded volume of the auctioneer is uncertain. But if bidders are asymmetric ex-ante, then both a price floor and a price cap are normally needed to get a unique equilibrium, which is well behaved. |
| Keywords: | Multi-unit auction; Single-unit demand; Uniform pricing; Pay-as-bid; Asymmetric information; Publicity effect |
| JEL: | C72 D44 D82 |
| Date: | 2023–05–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1460&r=des |
| By: | Stergios Athanasoglou; Somouaoga Bonkoungou; Lars Ehlers |
| Abstract: | Consider a setting in which individual strict preferences need to be aggregated into a social strict preference relation. For two alternatives and an odd number of agents, it follows from May's Theorem that the majority aggregation rule is the only one satisfying anonymity, neutrality and strategy-proofness (SP). For more than two alternatives, anonymity and neutrality are incompatible for many instances and we explore this tradeoff for strategy-proof rules. The notion of SP that we employ is Kemeny-SP (K-SP), which is based on the Kemeny distance between social orderings and strengthens previously used concepts in an intuitive manner. Dropping anonymity and keeping neutrality, we identify and analyze the first known nontrivial family of K-SP rules, namely semi-dictator rules. For two agents, semi-dictator rules are characterized by local unanimity, neutrality and K-SP. For an arbitrary number of agents, we generalize semi-dictator rules to allow for committees and show that they retain their desirable properties. Dropping neutrality and keeping anonymity, we establish possibility results for three alternatives. We provide a computer-aided solution to the existence of a locally unanimous, anonymous and K-SP rule for two agents and four alternatives. Finally, we show that there is no K-SP and anonymous rule which always chooses one of the agents' preferences. |
| Keywords: | Preference aggregation, strategy-proofness, anonymity, neutrality, Kemeny distance, semi-dictator rule |
| JEL: | D71 C70 |
| Date: | 2023–04 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:519&r=des |
| By: | Navin Kartik; Weijie Zhong |
| Abstract: | A seller posts a price for a single object. The seller's and buyer's values may be interdependent. We characterize the set of payoff vectors across all information structures. Simple feasibility and individual-rationality constraints identify the payoff set. The buyer can obtain the entire surplus; often, other mechanisms cannot enlarge the payoff set. We also study payoffs when the buyer is more informed than the seller, and when the buyer is fully informed. All three payoff sets coincide (only) in notable special cases -- in particular, when there is complete breakdown in a ``lemons market'' with an uninformed seller and fully-informed buyer. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.02994&r=des |
| By: | Liu, Zhaoyang; Banerjee, Simanti; Cason, Timothy N.; Hanley, Nick; Liu, Qi; Xu, Jintao; Kontoleon, Andreas |
| Abstract: | This paper presents a framed field experiment from China studying a spatially coordinated (SC) auction mechanism for the allocation of agri-environmental contracts, which pay farmers to change their agricultural practices to provide environmental benefits. The SC auction is designed to maximise a metric of environmental benefit that depends both on site-specific environmental values and benefits due to spatial coordination of conserved patches, subject to a budget constraint. We investigate whether auction performance can be improved by the introduction of agglomeration bonus (AB) and joint bidding (JB) mechanisms. The AB is a bonus payment awarded to neighbouring farmers who bid individually but receive agrienvironmental contracts simultaneously. The JB mechanism allows neighbouring farmers to bid jointly and provides a bonus payment for successful joint bids. We conducted experimental SC auctions with a total of 432 Chinese farmers randomly assigned to one of four treatments which differed in whether the AB and JB mechanisms were adopted, following a two-by-two full factorial experimental design. Our empirical results suggest that the SC auction has similar environmental performance regardless of whether an AB is provided, although cost-effectiveness is 1 slightly higher when AB is not provided. Moreover, introducing the JB mechanism into the SC auction leads to lower environmental performance and lower cost-effectiveness. Finally, the AB mechanism achieves higher environmental performance than the JB mechanism but has similar cost-effectiveness. |
| Keywords: | Environmental Economics and Policy, Land Economics/Use |
| Date: | 2023–03 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aesc23:334572&r=des |
| By: | Eric Budish; Ruiquan Gao; Abraham Othman; Aviad Rubinstein; Qianfan Zhang |
| Abstract: | Approximate Competitive Equilibrium from Equal Incomes (A-CEEI) is an equilibrium-based solution concept for fair division of discrete items to agents with combinatorial demands. In theory, it is known that in asymptotically large markets: 1. For incentives, the A-CEEI mechanism is Envy-Free-but-for-Tie-Breaking (EF-TB), which implies that it is Strategyproof-in-the-Large (SP-L). 2. From a computational perspective, computing the equilibrium solution is unfortunately a computationally intractable problem (in the worst-case, assuming $\textsf{PPAD}\ne \textsf{FP}$). We develop a new heuristic algorithm that outperforms the previous state-of-the-art by multiple orders of magnitude. This new, faster algorithm lets us perform experiments on real-world inputs for the first time. We discover that with real-world preferences, even in a realistic implementation that satisfies the EF-TB and SP-L properties, agents may have surprisingly simple and plausible deviations from truthful reporting of preferences. To this end, we propose a novel strengthening of EF-TB, which dramatically reduces the potential for strategic deviations from truthful reporting in our experiments. A (variant of) our algorithm is now in production: on real course allocation problems it is much faster, has zero clearing error, and has stronger incentive properties than the prior state-of-the-art implementation. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.11406&r=des |
| By: | Xu Lang; Zaifu Yang |
| Abstract: | We examine the implementation of reduced-form allocation rules that assign multiple heterogeneous indivisible objects to many agents, with incomplete information and distributional constraints across objects and agents. To obtain implementability results, we adopt a lift-and-project approach, which enables us to find a general condition called total unimodularity, a well-recognized class of matrices with simple entries of −1, 0, or 1. This condition yields several new and general characterization results including those on hierarchies, bihierarchies, adjacency, and paramodularity. Our model and results extend and unify many well-known ones, cover both universal implementation and quotas-dependent implementation, and offer several new applications of practical interest. |
| Keywords: | Implementation, Reduced-form rules, Indivisible goods, Distributional constraints, Total unimodularity, Incomplete information. |
| JEL: | D44 C65 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:23/02&r=des |
| By: | Haitian Xie |
| Abstract: | This study presents a novel approach to the density estimation of private values from second-price auctions, diverging from the conventional use of smoothing-based estimators. We introduce a Grenander-type estimator, constructed based on a shape restriction in the form of a convexity constraint. This constraint corresponds to the renowned Myerson regularity condition in auction theory, which is equivalent to the concavity of the revenue function for selling the auction item. Our estimator is nonparametric and does not require any tuning parameters. Under mild assumptions, we establish the cube-root consistency and show that the estimator asymptotically follows the scaled Chernoff's distribution. Moreover, we demonstrate that the estimator achieves the minimax optimal convergence rate. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.09052&r=des |
| By: | Khezr, Peyman; Pourkhanali, Armin |
| Abstract: | The Regional Greenhouse Gas Initiative (RGGI), as the largest cap-and-trade system in the United States, employs quarterly auctions to distribute emissions permits to firms. This study examines firm behavior and auction performance from both theoretical and empirical perspectives. We utilize auction theory to offer theoretical insights regarding the optimal bidding behavior of firms participating in these auctions. Subsequently, we analyze data from the past 58 RGGI auctions to assess the relevant parameters, employing panel random effects and machine learning models. Our findings indicate that most significant policy changes within RGGI, such as the Cost Containment Reserve, positively impacted the auction clearing price. Furthermore, we identify critical parameters, including the number of bidders and the extent of their demand in the auction, demonstrating their influence on the auction clearing price. This paper presents valuable policy insights for all cap-and-trade systems that allocate permits through auctions, as we employ data from an established market to substantiate the efficacy of policies and the importance of specific parameters. |
| Keywords: | Emissions permit, auctions, uniform-price, RGGI |
| JEL: | C5 D21 Q5 |
| Date: | 2023–04–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:117267&r=des |
| By: | Alfred Galichon (NYU - New York University [New York] - NYU - NYU System, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Bernard Salanié (Columbia University [New York]) |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03935865&r=des |
| By: | Siddhartha Banerjee; Kamesh Munagala; Yiheng Shen; Kangning Wang |
| Abstract: | A seller is pricing identical copies of a good to a stream of unit-demand buyers. Each buyer has a value on the good as his private information. The seller only knows the empirical value distribution of the buyer population and chooses the revenue-optimal price. We consider a widely studied third-degree price discrimination model where an information intermediary with perfect knowledge of the arriving buyer's value sends a signal to the seller, hence changing the seller's posterior and inducing the seller to set a personalized posted price. Prior work of Bergemann, Brooks, and Morris (American Economic Review, 2015) has shown the existence of a signaling scheme that preserves seller revenue, while always selling the item, hence maximizing consumer surplus. In a departure from prior work, we ask whether the consumer surplus generated is fairly distributed among buyers with different values. To this end, we aim to maximize welfare functions that reward more balanced surplus allocations. Our main result is the surprising existence of a novel signaling scheme that simultaneously $8$-approximates all welfare functions that are non-negative, monotonically increasing, symmetric, and concave, compared with any other signaling scheme. Classical examples of such welfare functions include the utilitarian social welfare, the Nash welfare, and the max-min welfare. Such a guarantee cannot be given by any consumer-surplus-maximizing scheme -- which are the ones typically studied in the literature. In addition, our scheme is socially efficient, and has the fairness property that buyers with higher values enjoy higher expected surplus, which is not always the case for existing schemes. |
| Date: | 2023–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2305.07006&r=des |