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on Economic Design |
| By: | Salvador Barberà; Danilo Coelho |
| Abstract: | We propose mechanisms for two parties with potentially conflicting objectives to jointly select a predetermined number of candidates to occupy decision-making positions. Two leading examples of these situations are: i) the selection of an arbitrator panel by two conflicting firms, and ii) the bipartisan coalition's selection of a set of judges to occupy court vacancies. We analyze the efficiency, fairness, and simplicity of equilibrium outcomes in strategic games induced by these mechanisms. Their effectiveness hinges on the parties' preferences over the sets containing the required number of the candidates to be chosen. |
| Keywords: | appointing arbitrators, appointing judges, rule of k name, split appointment rules, compromise, unanimity compromise set, top compromise set |
| JEL: | D02 D71 D72 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:1442&r= |
| By: | Nicole Immorlica; Nicholas Wu; Brendan Lucier |
| Abstract: | We study the problem of a principal who wants to influence an agent's observable action, subject to an ex-post budget. The agent has a private type determining their cost function. This paper endogenizes the value of the resource driving incentives, which holds no inherent value but is restricted by finite availability. We characterize the optimal mechanism, showing the emergence of a pooling region where the budget constraint binds for low-cost types. We then introduce a linear value for the transferable resource; as the principal's value increases, the mechanism demands more from agents with binding budget constraint but less from others. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.15531&r= |
| By: | Alfred Galichon; Antoine Jacquet |
| Abstract: | This chapter explores the role of substitutability in economic models, particularly in the context of optimal transport and matching models. In equilibrium models with substitutability, market-clearing prices can often be recovered using coordinate update methods such as Jacobi's algorithm. We provide a detailed mathematical analysis of models with substitutability through the lens of Z- and M-functions, in particular regarding their role in ensuring the convergence of Jacobi's algorithm. The chapter proceeds by studying matching models using substitutability, first focusing on models with (imperfectly) transferable utility, and then on models with non-transferable utility. In both cases, the text reviews theoretical implications as well as computational approaches (Sinkhorn, Gale--Shapley), and highlights a practical economic application. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.07628&r= |
| By: | Agustin G. Bonifacio; Nadia Gui\~nazu; Noelia Juarez; Pablo Neme; Jorge Oviedo |
| Abstract: | We study a one-to-one labor matching market. If a worker considers resigning from her current job to obtain a better one, how long does it take for this worker to actually get it? We present an algorithm that models this situation as a re-stabilization process involving a vacancy chain. Each step of the algorithm is a link of such a chain. We show that the length of this vacancy chain, which can be interpreted as the time the worker has to wait for her new job, is intimately connected with the lattice structure of the set of stable matchings of the market. Namely, this length can be computed by considering the cardinalities of cycles in preferences derived from the initial and final stable matchings involved. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.07084&r= |
| By: | Eduardo Duque; Juan S. Pereyra; Juan Pablo Torres-Martinez |
| Abstract: | The student-optimal stable mechanism (DA), the most popular mechanism in school choice, is the only one that is both stable and strategy-proof. However, when DA is implemented, a student can change the schools of others without changing her own. We show that this drawback is limited: a student cannot change her classmates without modifying her school. We refer to this new property as local non-bossiness. Along with strategy-proofness, it ensures a local notion of group strategy-proofness in which manipulating coalitions are restricted to students in the same school. Furthermore, local non-bossiness plays a crucial role in incentives when students have preferences over their colleagues. As long as students first consider the school to which they are assigned and then their classmates, DA induces the only stable and strategy-proof mechanism in this preference domain. To some extent, this is the maximal domain in which a stable and strategy-proof mechanism exists for any school choice context. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:udc:wpaper:wp559&r= |
| By: | Sebastian Schweighofer-Kodritsch (HU Berlin); Roland Strausz (HU Berlin) |
| Abstract: | We cast mechanism design with evidence in the framework of Myerson (1982), whereby his generalized revelation principle directly applies and yields standard notions of incentive compatible direct mechanisms. Their specific nature depends on whether the agent's (verifiable) presentation of evidence is contractually controllable, however. For deterministic implementation, we show that, in general, such control has value, and we offer two independent conditions under which this value vanishes, one on evidence (WET) and another on preferences (TIWO). Allowing for fully stochastic mechanisms, we also show how randomization generally has value and clarify to what extent this value vanishes under the common assumption of evidentiary normality (NOR). While, in general, the value of control extends to stochastic implementation, neither control nor randomization have any value if NOR holds together with WET or TIWO. |
| Keywords: | mechanism design; revelation principle; evidence; verifiable information; value of control; value of randomization; |
| JEL: | D82 |
| Date: | 2024–05–16 |
| URL: | http://d.repec.org/n?u=RePEc:rco:dpaper:504&r= |
| By: | Yuya Wakabayashi (JSPS Research Fellow (DC2), Graduate School of Economics, Osaka University); Ryosuke Sakai (School of Engineering, Tokyo Institute of Technology); Hiroki Shinozaki (Hitotsubashi Institute for Advanced Study, Hitotsubahi University) |
| Abstract: | We consider the single-object allocation problem with monetary transfers. Agents have hard budgets and their utility functions may exhibit income effects. We characterize truncated Vickrey rules with endogenous reserve prices by constrained efficiency or weak envy-freeness for equals, in addition to individual rationality, no subsidy for losers, and strategy-proofness. The same characterization result hold even if we replace weak envy freeness for equals with other fairness conditions; equal treatment of equals, envy-freeness, and anonymity in welfare. |
| Keywords: | Single-object allocation problem, Non-quasi-linear preference, Hard budget constraint, Efficiency, Fairness, Strategy-proofness, Vickrey rule with reserve prices |
| JEL: | D47 D63 D82 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:24e003&r= |
| By: | Marinho Bertanha; Margaux Luflade; Ismael Mourifié |
| 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 incentivize students to strategically misreport their preferences. In this paper, we provide an approach for identifying the 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. Matching theory predicts that students’ behavior in Chile should be strategic because they can list only up to eight options, and we find empirical evidence consistent with such behavior. Our bounds are informative enough to reveal significant heterogeneity in graduation success with respect to preferences and school assignment. |
| JEL: | C01 C12 C21 C26 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32434&r= |
| By: | Mihir Bhattacharya (Ashoka University); Ojasvi Khare (Indian Statistical Institute, Delhi) |
| Abstract: | We consider the problem of dividing and allocating a perfectly divisible heterogeneous good where agents have a preference for location and quantity. We assume that preferences are single-peaked in quantity, i.e., semi-single-peaked which can be represented by continuous indifference curves (ICs). We show existence of envy-free and Pareto efficient allocation rules, and characterize the set of all such rules using the notion of a balanced IC. We define the balanced-curve allocation (BCA) which uses the region between the two balanced ICs to obtain feasible allocations. We show that an allocation rule is envy-free and Pareto efficient if and only if it is in the set specified by the BCA rule. We show that there is no strategy-proof, envy-free and Pareto efficient allocation rule. We provide some insights into the problem when there are more than 2 agents. |
| Keywords: | Allocation; Envy-free; Location; Quantity; single-peaked |
| Date: | 2024–04–04 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:111&r= |
| By: | Mihir Bhattacharya (Ashoka University); Ojasvi Khare (Indian Statistical Institute) |
| Abstract: | We consider a social choice model where voters have single-peaked preferences over the alternatives that are aggregated to produce contiguous sets or intervals of fixed cardinality, L. This is applicable in situations where the alternatives can be arranged in a line (e.g. plots of land) and a contiguous subset of these is required (e.g. a hospital or a school). We define interval-social choice correspondences (I-SCCs) on profiles of single-peaked preferences which select intervals. We extend single-peaked preferences to intervals using responsiveness. We show that generalized median-interval (GMI) rules are the only strategy-proof, anonymous and interval efficient I-SCCs. These rules are interval versions of generalized median voter rules which consist of the median, min and max rules. We show that responsiveness over intervals is necessary for the strategy-proofness of the GMI rule if preferences over alternatives are single-peaked. |
| Keywords: | median voter; responsive; single-peaked preferences; social choice correspondence; strategy-proofness; voter |
| Date: | 2023–03–14 |
| URL: | http://d.repec.org/n?u=RePEc:ash:wpaper:89&r= |
| By: | Drichoutis, Andreas C.; Palma, Marco; Feldman, Paul |
| Abstract: | Previous literature analyzing the effects of incentive compatibility of experimental payment mechanisms is dominated by theory. With overwhelming evidence of theory violations in a multiplicity of domains, we fill this gap by empirically exploring the effects of different payment mechanisms in induced preference elicitation using a large sample of over 3800 participants across three experiments. In Experiment 1, we collected responses for offer prices to sell a card like in Cason and Plott (2014), systematically varying on a between-subjects basis the way subjects received payments over repeated rounds, by either paying for all decisions (and various modifications) or just one, as well as making the payments certain, probabilistic or purely hypothetical. While we find that the magnitude of the induced value and the range of the prices used to draw a random price significantly affect misbidding behavior, neither the payment mechanism nor the certainty of payment affected misbidding. In Experiment 2, we replaced the BDM mechanism with a second price auction and found similar results, albeit less misbidding rates. In Experiment 3, we examine the effect of payment mechanisms on choice under risk and find portfolio effects (i.e., paying all rounds) when the lottery pairs do not involve options with certainty. Overall, our empirical exercise shows that payment mechanism design considerations should place more weight on the choice architecture rather than on incentive compatibility. |
| Keywords: | Becker-DeGroot-Marschak mechanism, second price auction, risk choices, preference elicitation, choice architecture |
| JEL: | C80 C91 D44 |
| Date: | 2024–05–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120898&r= |
| By: | Cowgill, Bo (Columbia Business School); Davis, Jonathan (University of Chicago); Montagnes, B. Pablo (Emory University); Perkowski, Patryk (Yeshiva University) |
| Abstract: | A principal often needs to match agents to perform coordinated tasks, but agents can quit or slack off if they dislike their match. We study two prevalent approaches for matching within organizations: Centralized assignment by firm leaders and self-organization through market-like mechanisms. We provide a formal model of the strengths and weaknesses of both methods under different settings, incentives, and production technologies. The model highlights tradeoffs between match-specific productivity and job satisfaction. We then measure these tradeoffs with data from a large organization's internal talent market. Firm-dictated matches are 33% more valuable than randomly assigned matches within job categories (using the firm's preferred metric of quality). By contrast, preference-based matches (using deferred acceptance) are only 5% better than random but are ranked (on average) about 38 percentiles higher by the workforce. The self-organized match is positively assortative and helps workers grow new skills; the firm's preferred match is negatively assortative and harvests existing expertise. |
| Keywords: | internal labor markets, assortative matching, assignment mechanisms, team formation, matching |
| JEL: | M5 D47 J4 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp16986&r= |
| By: | Ingrid Huitfeldt; Victoria Marone; Daniel C. Waldinger |
| Abstract: | Many centralized assignment systems seek to not only provide good matches for participants’ current needs, but also to accommodate changes in preferences and circumstances. We study the problem of designing a dynamic reassignment mechanism in the context of Norway’s system for allocating patients to general practitioners (GPs). We provide direct evidence of misallocation under the current system––patients sitting on waitlists for each others’ GPs, but who cannot trade––and analyze an alternative mechanism that adapts the Top-Trading Cycles (TTC) algorithm to a dynamic environment. In contrast to the static case, dynamic TTC may leave some agents worse off relative to a status quo where trades are not permitted, introducing novel concerns about fairness. We empirically evaluate how this mechanism would perform by estimating a structural model of switching behavior and GP choice. While introducing TTC would on average reduce waiting times and increase patient welfare––with especially large benefits for female patients and recent movers––patients endowed with undesirable GPs would be harmed. Adjustments to the priority system can avoid harming this group while preserving most of the gains from TTC. |
| JEL: | D04 D47 I18 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32458&r= |
| By: | Abdoulaye Ndiaye |
| Abstract: | This paper studies the optimal transaction fee mechanisms for blockchains, focusing on the distinction between price-based ($\mathcal{P}$) and quantity-based ($\mathcal{Q}$) controls. By analyzing factors such as demand uncertainty, validator costs, cryptocurrency price fluctuations, price elasticity of demand, and levels of decentralization, we establish criteria that determine the selection of transaction fee mechanisms. We present a model framed around a Nash bargaining game, exploring how blockchain designers and validators negotiate fee structures to balance network welfare with profitability. Our findings suggest that the choice between $\mathcal{P}$ and $\mathcal{Q}$ mechanisms depends critically on the blockchain's specific technical and economic features. The study concludes that no single mechanism suits all contexts and highlights the potential for hybrid approaches that adaptively combine features of both $\mathcal{P}$ and $\mathcal{Q}$ to meet varying demands and market conditions. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.00235&r= |