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on Economic Design |
| By: | Marinho Bertanha; Margaux Luflade; Ismael Mourifi\'e |
| Abstract: | A growing number of central authorities use assignment mechanisms to allocate students to schools in a way that reflects student preferences and school priorities. However, most real-world mechanisms give students an incentive to be strategic and misreport their preferences. In this paper, we provide an identification approach for causal effects of school assignment on future outcomes that accounts for strategic misreporting. Misreporting may invalidate existing point-identification approaches, and we derive sharp bounds for causal effects that are robust to strategic behavior. Our approach applies to any mechanism as long as there exist placement scores and cutoffs that characterize that mechanism's allocation rule. We use data from a deferred acceptance mechanism that assigns students to more than 1, 000 university-major combinations in Chile. Students behave strategically because the mechanism in Chile constrains the number of majors that students submit in their preferences to eight options. Our methodology takes that into account and partially identifies the effect of changes in school assignment on various graduation outcomes. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.14282&r=des |
| By: | Ming Chen; Sareh Nabi; Marciano Siniscalchi |
| Abstract: | This paper proposes a learning model of online ad auctions that allows for the following four key realistic characteristics of contemporary online auctions: (1) ad slots can have different values and click-through rates depending on users' search queries, (2) the number and identity of competing advertisers are unobserved and change with each auction, (3) advertisers only receive partial, aggregated feedback, and (4) payment rules are only partially specified. We model advertisers as agents governed by an adversarial bandit algorithm, independent of auction mechanism intricacies. Our objective is to simulate the behavior of advertisers for counterfactual analysis, prediction, and inference purposes. Our findings reveal that, in such richer environments, "soft floors" can enhance key performance metrics even when bidders are drawn from the same population. We further demonstrate how to infer advertiser value distributions from observed bids, thereby affirming the practical efficacy of our approach even in a more realistic auction setting. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.11732&r=des |
| By: | Majid Mahzoon; Ali Shourideh; Ariel Zetlin-Jones |
| Abstract: | We study the classic principal-agent model when the signal observed by the principal is chosen by the agent. We fully characterize the optimal information structure from an agent's perspective in a general moral hazard setting with limited liability. Due to endogeneity of the contract chosen by the principal, the agent's choice of information is non-trivial. We show that the agent's problem can be mapped into a geometrical game between the principal and the agent in the space of likelihood ratios. We use this representation result to show that coarse contracts are sufficient: The agent can achieve her best with binary signals. Additionally, we can characterize conditions under which the agent is able to extract the entire surplus and implement the first-best efficient allocation. Finally, we show that when effort and performance are one-dimensional, under a general class of models, threshold signals are optimal. Our theory can thus provide a rationale for coarseness of contracts based on the bargaining power of the agent in negotiations. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.12457&r=des |
| By: | Yeon-Koo Che; Olivier Tercieux |
| Abstract: | We study the optimal method for rationing scarce resources through a queue system. The designer controls agents' entry into a queue and their exit, their service priority -- or queueing discipline -- as well as their information about queue priorities, while providing them with the incentive to join the queue and, importantly, to stay in the queue, when recommended by the designer. Under a mild condition, the optimal mechanism induces agents to enter up to a certain queue length and never removes any agents from the queue; serves them according to a first-come-first-served (FCFS) rule; and provides them with no information throughout the process beyond the recommendations they receive. FCFS is also necessary for optimality in a rich domain. We identify a novel role for queueing disciplines in regulating agents' beliefs and their dynamic incentives and uncover a hitherto unrecognized virtue of FCFS in this regard. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.07746&r=des |
| By: | Hsin-Lun Li |
| Abstract: | A money transfer involves a buyer and a seller. A buyer buys goods or services from a seller. The money the buyer decreases is the same as that the seller increases. At each time step, a pair of socially connected agents are selected and transact in agreed money. We evolve the Deffuant model to a money exchange system and study circumstances under which asymptotic stability holds, or equal wealth can be achieved. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.02512&r=des |
| By: | Laura Doval; Ran Eilat |
| Abstract: | An analyst observes the frequency with which an agent takes actions, but not the frequency with which she takes actions conditional on a payoff relevant state. In this setting, we ask when the analyst can rationalize the agent's choices as the outcome of the agent learning something about the state before taking action. Our characterization marries the obedience approach in information design (Bergemann and Morris, 2016) and the belief approach in Bayesian persuasion (Kamenica and Gentzkow, 2011) relying on a theorem by Strassen (1965) and Hall's marriage theorem. We apply our results to ring-network games and to identify conditions under which a data set is consistent with a public information structure in first-order Bayesian persuasion games. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.13849&r=des |
| By: | Ruyi Liu; Jingzhi Tie; Zhen Wu; Qing Zhang |
| Abstract: | The focus of this paper is on identifying the most effective selling strategy for pairs trading of stocks. In pairs trading, a long position is held in one stock while a short position is held in another. The goal is to determine the optimal time to sell the long position and repurchase the short position in order to close the pairs position. The paper presents an optimal pairs-trading selling rule with trading constraints. In particular, the underlying stock prices evolve according to a two dimensional geometric Brownian motion and the trading permission process is given in terms of a two-state {trading allowed, trading not allowed} Markov chain. It is shown that the optimal policy can be determined by a threshold curve which is obtained by solving the associated HJB equations (quasi-variational inequalities). A closed form solution is obtained. A verification theorem is provided. Numerical experiments are also reported to demonstrate the optimal policies and value functions. |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2307.15300&r=des |
| By: | Columbus, Simon (University of Copenhagen); Feld, Lars P. (University of Freiburg); Kasper, Matthias (Walter Eucken Institute, Freiburg); Rablen, Matthew D. (University of Sheffield) |
| Abstract: | This study investigates the effects of unfair enforcement of institutional rules on public good contributions, personal and social norms, and trust. In a preregistered online experiment (n = 1, 038), we find that biased institutions reduce rule compliance compared to fair institutions. However, rule enforcement – fair and unfair – reduces norm polarisation compared to no enforcement. We also find that social heterogeneity lowers average trust and induces ingroup favouritism in trust. Finally, we find consistent evidence of peer effects: higher levels of peer compliance raise future compliance and spillover positively into norms and trust. Our study contributes to the literature on behavioural responses to institutional design and strengthens the case for unbiased rule enforcement. |
| Keywords: | public goods, compliance, social norms, trust, audits, biased rule enforcement, polarisation |
| JEL: | H41 C72 C91 C92 |
| Date: | 2023–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16346&r=des |
| By: | Trinh Le (Motu Economic and Public Policy Research); Euan Richardson (Motu Economic and Public Policy Research) |
| Abstract: | This paper uses household-level data from the New Zealand Household Economic Survey from 2006/07 to 2018/19 to examine expenditure patterns of retiree households. We find that in 2018/19 retiree households spend on average $55, 700 per annum, of which 13% is on groceries, 19% on housing, 14% on other necessities (household utilities, communications, and insurance), and the remaining 54% on discretionary expenses. Household expenditure patterns differ significantly across demographic groups and income levels. On average, singles living alone spend $30, 700 per annum whereas couple-only households spend $65, 100 per annum. As retiree households age, they spend less, especially on discretionary categories such as clothing, transport, and recreation and culture. We find that subjective wellbeing is higher for retiree households who have higher qualifications, own their home, have higher incomes, live with their partner and have no dependent children, and is the lowest for rent-paying renters, single retirees living with others and M?ori households. Retiree households are more likely to report having adequate income for every-day needs and being satisfied with life and less likely to report financial strain than pre-retirement households. |
| Keywords: | Retiree households, expenditures, retirement |
| JEL: | J14 J26 D12 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:mtu:wpaper:23_07&r=des |