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on Economic Design |
| By: | König, Tobias; Mechtenberg, Lydia; Kübler, Dorothea; Schmacker, Renke |
| Abstract: | We investigate fairness preferences in matching mechanisms using a spectator design. Participants choose between the Boston mechanism or the serial dictatorship mechanism (SD) played by others. In our setup, the Boston mechanism generates justified envy, while the strategy-proof SD ensures envy-freeness. When priorities are merit-based, many spectators prefer the Boston mechanism, and this preference increases when priorities are determined by luck. At the same time, there is support for SD, but mainly when priorities are merit-based. Stated voting motives indicate that choosing SD is driven by concerns for envy-freeness rather than strategy-proofness, while support for the Boston mechanism stems from the belief that strategic choices create entitlements. |
| Keywords: | markets, school choice, voting, Boston mechanism, sincere agents, justified envy |
| JEL: | D47 C92 I24 D72 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2023204&r=des |
| By: | Yiding Feng; Brendan Lucier; Aleksandrs Slivkins |
| Abstract: | We study a game played between advertisers in an online ad platform. The platform sells ad impressions by first-price auction and provides autobidding algorithms that optimize bids on each advertiser's behalf. Each advertiser strategically declares a budget constraint (and possibly a maximum bid) to their autobidder. The chosen constraints define an "inner" budget-pacing game for the autobidders, who compete to maximize the total value received subject to the constraints. Advertiser payoffs in the constraint-choosing "metagame" are determined by the equilibrium reached by the autobidders. Advertisers only specify budgets and linear values to their autobidders, but their true preferences can be more general: we assume only that they have weakly decreasing marginal value for clicks and weakly increasing marginal disutility for spending money. Our main result is that despite this gap between general preferences and simple autobidder constraints, the allocations at equilibrium are approximately efficient. Specifically, at any pure Nash equilibrium of the metagame, the resulting allocation obtains at least half of the liquid welfare of any allocation and this bound is tight. We also obtain a 4-approximation for any mixed Nash equilibrium, and this result extends also to Bayes-Nash equilibria. These results rely on the power to declare budgets: if advertisers can specify only a (linear) value per click but not a budget constraint, the approximation factor at equilibrium can be as bad as linear in the number of advertisers. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.07374&r=des |
| By: | Filip Tokarski (Stanford University; Group for Research in Applied Economics (GRAPE)); Joanna Krysta (Stanford University; Group for Research in Applied Economics (GRAPE)); Paweł Doligalski (Bristol University; Group for Research in Applied Economics (GRAPE)); Piotr Dworczak (Northwestern University; Group for Research in Applied Economics (GRAPE)) |
| Abstract: | We consider a general mechanism-design environment in which the planner faces incentive constraints such as the ones resulting from agents' private information or ability to take hidden actions. We study the properties of optimal mechanisms when some decisions are incentive-separable: A set of decisions is incentive-separable if, starting at some initial allocation, perturbing these decisions along agents' indifference curves preserves incentive constraints. We show that, under regularity conditions, the optimal mechanism allows agents to make unrestricted choices over incentive-separable decisions, given some prices and budgets. Using this result, we extend and unify the Atkinson-Stiglitz theorem on the undesirability of differentiated commodity taxes and the Diamond-Mirrlees production efficiency result. We also demonstrate how the analysis of incentive separability can provide a novel justification for in-kind redistribution programs similar to food stamps. |
| Keywords: | equity-efficiency trade-off, separability, optimal taxation |
| JEL: | D82 H21 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:fme:wpaper:85&r=des |
| By: | Yuzhi Yang (Vrije Universiteit Amsterdam); Erik Ansink (University of Amsterdam); Jens Gudmundsson (University of Copenhagen) |
| Abstract: | We propose the river pollution claims problem to distribute a pollution budget among agents located along a river. A key distinction with the standard claims problem is that agents are ordered exogenously. For environmental reasons, the location of pollution along the river is an important concern in addition to fairness. We characterize the class of externality-adjusted proportional rules and argue that they strike a balance between fairness and minimizing environmental damage in the river. We also propose two novel axioms that are motivated by the river pollution context and use them to characterize two priority rules. |
| Keywords: | Claims Problem, River Pollution, Pollution Permits, Externality-Adjusted Proportional Rules, Priority Rules |
| JEL: | D62 D63 C71 Q25 |
| Date: | 2023–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20230036&r=des |
| By: | Rosina Rodríguez Olivera |
| Abstract: | I consider a model in which a monopolist data-seller offers information to privately informed data-buyers who play a game of incomplete information. I characterize the data-seller's optimal menu, which screens between two types of data-buyers. Data-buyers' preferences for information cannot generally be ordered across types. I show that the nature of data-buyers' preferences for information allows the data-seller to extract all surplus. In particular, the data-seller offers a perfectly informative experiment , which makes the data-buyer with the highest willingness to pay and a partially informative experiment, which makes the data-buyer with the highest willingness to pay for perfect information indifferent between both experiments. I also show that the features of the optimal menu are determined by the interaction between data-buyers' strategic incentives and the correlation of their private information. Namely, the data-seller offers two informative experiments even when data-buyers would choose the same action without supplemental information if data-buyers: i) have coordination incentives and their private information is negatively correlated or ii) have anti-coordination incentives and their private information is positively correlated. |
| Keywords: | Screening, Information, Strategic incentives |
| JEL: | D80 D82 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_442&r=des |
| By: | Janet Hua Jiang; Peter Norman; Daniela Puzzello; Bruno Sultanum; Randall Wright |
| Abstract: | Monetary exchange is deemed essential when better incentive-compatible outcomes can be achieved with money than without it. We study essentiality both theoretically and experimentally, using finite-horizon monetary models that are naturally suited to the lab. We also follow the mechanism design approach and study the effects of strategy recommendations, both when they are incentive-compatible and when they are not. Results show that output and welfare are significantly enhanced by fiat currency when monetary equilibrium exists. Also, recommendations help if they are incentive-compatible but not much otherwise. Sometimes money is used when it should not be and we investigate why, using surveys and measures of social preferences. |
| Keywords: | Central bank research; Economic models |
| JEL: | E4 E5 C92 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:23-39&r=des |