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on Economic Design |
| By: | Di Feng |
| Abstract: | We consider multiple-type housing markets (Moulin, 1995), which extend Shapley-Scarf housing markets (Shapley and Scarf, 1974) from one dimension to higher dimensions. In this model, Pareto efficiency is incompatible with individual rationality and strategy-proofness (Konishi et al., 2001). Therefore, we consider two weaker efficiency properties: coordinatewise efficiency and pairwise efficiency. We show that these two properties both (i) are compatible with individual rationality and strategy-proofness, and (ii) help us to identify two specific mechanisms. To be more precise, on various domains of preference profiles, together with other well-studied properties (individual rationality, strategy-proofness, and non-bossiness), coordinatewise efficiency and pairwise efficiency respectively characterize two extensions of the top-trading-cycles mechanism (TTC): the coordinatewise top-trading-cycles mechanism (cTTC) and the bundle top-trading-cycles mechanism (bTTC). Moreover, we propose several variations of our efficiency properties, and we find that each of them is either satisfied by cTTC or bTTC, or leads to an impossibility result (together with individual rationality and strategy-proofness). Therefore, our characterizations can be primarily interpreted as a compatibility test: any reasonable efficiency property that is not satisfied by cTTC or bTTC could be considered incompatible with individual rationality and strategy-proofness. For multiple-type housing markets with strict preferences, our characterization of bTTC constitutes the first characterization of an extension of the prominent TTC mechanism |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.14989&r=des |
| By: | Larionov, Daniil |
| Abstract: | I consider a repeated auction setting with colluding buyers and a seller who adjusts reserve prices over time without long-term commitment. To model the seller's concern for collusion, I introduce a new equilibrium concept: collusive public perfect equilibrium. For every strategy of the seller I define the corresponding "buyer-game" in which the seller is replaced by Nature who chooses the reserve prices for the buyers in accordance with the seller's strategy. A public perfect equilibrium is collusive if the buyers cannot achieve a higher symmetric public perfect equilibrium payoff in the corresponding buyer-game. In a setting with symmetric buyers with private binary iid valuations and publicly revealed bids, I find collusive public perfect equilibria that allow the seller to extract the entire surplus from the buyers in the limit as the buyers' discount factor goes to 1. I therefore show that a non-committed seller can effectively fight collusion even when she faces patient buyers, can only set reserve prices, and has to satisfy stringent public disclosure requirements. |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:23029&r=des |
| By: | Rustamdjan Hakimov (University of Lausanne); Renke Schmacker (University of Lausanne); Camille Terrier (Queen Mary University of London) |
| Abstract: | This paper investigates the role played by self-confidence in college applications. Using incentivized experiments, we measure the self-confidence of more than 2, 000 students applying to colleges in France. The best female students and students from low socioeconomic status (low-SES) significantly underestimate their rank in the grade distribution compared to male and high-SES students. By matching our survey data with administrative data on real college applications and admissions, we show that miscalibrated confidence affects college choice controlling for grades. We then estimate the impact of a randomized intervention that corrects students’ under-and overconfidence by informing them of their real rank in the grade distribution. The intervention fully offsets the impact of under- and overconfidence for college applications. Providing feedback also makes the best students, who were initially underconfident, apply to more ambitious programs with stronger effects for female and low-SES students. Among top students, our intervention closes 72% of the gender gap in admissions to elite programs, and 95% of the social gap. We conclude that confidence is an important behavioral consideration for the design of college admission markets. |
| Keywords: | college choice, confidence, information treatment, matching mecha-nism, gender and social gap, survey experiment |
| JEL: | I24 J24 D91 C90 |
| Date: | 2023–08–31 |
| URL: | http://d.repec.org/n?u=RePEc:qmw:qmwecw:962&r=des |
| By: | de Cornière, Alexandre; Mantovani, Andrea; Shekhar, Shiva |
| Abstract: | We investigate the welfare effects of third-degree price discrimination by a two-sided platform that enables interaction between buyers and sellers. Sellers are heterogenous with respect to their per-interaction benefit, and, under price discrimination, the platform can condition its fee on sellers’ type. In a model with linear demand on each side, we show that price discrimination: (i) increases participation on both sides; (ii) enhances total welfare; (iii) may result in a strict Pareto improvement, with both seller types being better-off than under uniform pricing. These results, which are in stark contrast to the traditional analysis of price discrimination, are driven by the existence of cross-group network effects. By improving the firm’s ability to monetize seller participation, price discrimination induces the platform to attract more buyers, which then increases seller participation. The Pareto improvement result means that even those sellers who pay a higher price under discrimination can be better-off, due to the increased buyer participation. |
| JEL: | D42 D62 L11 L12 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:128428&r=des |
| By: | Xiaohong Chen; Sokbae Lee; Yuan Liao; Myung Hwan Seo; Youngki Shin; Myunghyun Song |
| Abstract: | We introduce a new class of algorithms, Stochastic Generalized Method of Moments (SGMM), for estimation and inference on (overidentified) moment restriction models. Our SGMM is a novel stochastic approximation alternative to the popular Hansen (1982) (offline) GMM, and offers fast and scalable implementation with the ability to handle streaming datasets in real time. We establish the almost sure convergence, and the (functional) central limit theorem for the inefficient online 2SLS and the efficient SGMM. Moreover, we propose online versions of the Durbin-Wu-Hausman and Sargan-Hansen tests that can be seamlessly integrated within the SGMM framework. Extensive Monte Carlo simulations show that as the sample size increases, the SGMM matches the standard (offline) GMM in terms of estimation accuracy and gains over computational efficiency, indicating its practical value for both large-scale and online datasets. We demonstrate the efficacy of our approach by a proof of concept using two well known empirical examples with large sample sizes. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.13564&r=des |
| By: | Juan Jose Francisco Miguelez; Cristin Buescu |
| Abstract: | We study the problem of valuing a vulnerable derivative with bilateral cash flows between two counterparties in the presence of funding, credit and wrong-way risks, and derive a closed-form valuation formula for an at-the-money (ATM) forward contract as well as a second order approximation for the general case. We posit a model with heterogeneous interest rates and default occurrence and infer a Cauchy problem for the pre-default valuation function of the contract, which includes ab initio any counterparty risk - as opposed to calculating valuation adjustments collectively known as XVA. Under a specific funding policy which linearises the Cauchy problem, we obtain a generic probabilistic representation for the pre-default valuation (Theorem 1). We apply this general framework to the valuation of an equity forward and establish the contract can be expressed as a continuous portfolio of European options with suitably chosen strikes and expiries under a particular probability measure (Theorem 2). Our valuation formula admits a closed-form expression when the forward contract is ATM (Corollary 2) and we derive a second order approximation in moneyness when the contract is close to ATM (Theorem 3). Numerical results of our model show that the forward is more sensitive to funding factors than credit ones, while higher stock funding costs increase sensitivity to credit spreads and wrong-way risk. |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2308.10568&r=des |
| By: | Corgnet, Brice; DeSantis, Mark; Siemroth, Christoph |
| Abstract: | We develop a novel experimental paradigm to study the causal impact of two classes of trading algorithms on price efficiency, trading volume, liquidity, and welfare. In our design, public information about the asset value is revealed during trading, which gives algorithms a reaction speed advantage. We distinguish market-order (aggressive) and limit-order (passive) algorithms, which replace human traders from the baseline markets. Relative to human-only markets, limit-order algorithms improve welfare, although human traders do not benefit, as the surplus is captured by the algorithms. Market-order algorithms do not change welfare, though they do lower human traders’ profits. Both types of algorithms improve price efficiency, lower volatility, and increase the share of profits for unsophisticated human traders. Our results offer unique evidence that non-exploitative algorithms can enhance welfare and be beneficial to unsophisticated traders. |
| Keywords: | Algorithmic Trading, Experimental Markets, High-Frequency Trading, Price Efficiency, News Announcements, Welfare |
| Date: | 2023–08–30 |
| URL: | http://d.repec.org/n?u=RePEc:esx:essedp:36273&r=des |
| By: | Brice Corgnet (Emlyon Business School, GATE UMR 5824, 23 Avenue Guy de Collongue, 69130 Ecully, France); Mark DeSantis (Chapman University, Argyros School of Business and Economics; Economic Science Institute, One University Drive, Orange, CA 92866, USA); Christoph Siemroth (University of Essex, Department of Economics, Wivenhoe Park, Colchester, CO4 3SQ, UK) |
| Abstract: | We develop a novel experimental paradigm to study the causal impact of two classes of trading algorithms on price efficiency, trading volume, liquidity, and welfare. In our design, public information about the asset value is revealed during trading, which gives algorithms a reaction speed advantage. We distinguish market-order (aggressive) and limit-order (passive) algorithms, which replace human traders from the baseline markets. Relative to human-only markets, limit-order algorithms improve welfare, although human traders do not benefit, as the surplus is captured by the algorithms. Market-order algorithms do not change welfare, though they do lower human traders’ profits. Both types of algorithms improve price efficiency, lower volatility, and increase the share of profits for unsophisticated human traders. Our results offer unique evidence that non-exploitative algorithms can enhance welfare and be beneficial to unsophisticated traders. |
| Keywords: | Algorithmic Trading, Experimental Markets, High-Frequency Trading, Price Efficiency, News Announcements, Welfare |
| JEL: | C92 D61 G12 G14 G41 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:2313&r=des |
| By: | Tania Babina; Simcha Barkai; Jessica Jeffers; Ezra Karger; Ekaterina Volkova |
| Abstract: | We hand-collect and standardize information describing all 3, 055 antitrust lawsuits brought by the Department of Justice (DOJ) between 1971 and 2018. Using restricted establishment-level microdata from the U.S. Census, we compare the economic outcomes of a non-tradable industry in states targeted by DOJ antitrust lawsuits to outcomes of the same industry in other states that were not targeted. We document that DOJ antitrust enforcement actions permanently increase employment by 5.4% and business formation by 4.1%. Using an event-study design, we find (1) a sharp increase in payroll that exceeds the increase in employment, meaning that DOJ antitrust enforcement increases average wages, (2) an economically smaller increase in sales that is statistically insignificant, and (3) a precise increase in the labor share. While we cannot separately measure the quantity and price of output, the increase in production inputs (employment), together with a proportionally smaller increase in sales, strongly suggests that these DOJ antitrust enforcement actions increase the quantity of output and simultaneously decrease the price of output. Our results show that government antitrust enforcement leads to persistently higher levels of economic activity in targeted industries. |
| JEL: | E24 J21 K21 L4 L40 |
| Date: | 2023–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:31597&r=des |