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on Economic Design |
| By: | Eduardo Duque; Juan S. Pereyra; Juan Pablo Torres-Mart\'inez |
| 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:arx:papers:2406.01398&r= |
| By: | Jiarui Xie |
| Abstract: | We study a multi-stage admission system, known as the Tiered Deferred Acceptance mechanism, designed to benefit some schools over others. The current US public school and Chinese college admission systems are two examples. In this system, schools are partitioned into tiers, and the Deferred Acceptance algorithm is applied within each tier. Once assigned, students cannot apply to schools in subsequent tiers. This mechanism is not strategyproof. Therefore, we study the Nash equilibria of the induced preference revelation game. We show that Nash equilibrium outcomes are nested in the sense that merging tiers preserves all equilibrium outcomes. We also identify within-tier acyclicity as a necessary and sufficient condition for the mechanism to implement stable matchings in equilibrium. Our findings suggest that transitioning from the Deferred Acceptance mechanism to the Tiered Deferred Acceptance mechanism may not improve student quality at top-tier schools as intended. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.00455&r= |
| By: | Alireza Fallah; Michael I. Jordan; Annie Ulichney |
| Abstract: | We consider a dynamic mechanism design problem where an auctioneer sells an indivisible good to two groups of buyers in every round, for a total of $T$ rounds. The auctioneer aims to maximize their discounted overall revenue while adhering to a fairness constraint that guarantees a minimum average allocation for each group. We begin by studying the static case ($T=1$) and establish that the optimal mechanism involves two types of subsidization: one that increases the overall probability of allocation to all buyers, and another that favors the group which otherwise has a lower probability of winning the item. We then extend our results to the dynamic case by characterizing a set of recursive functions that determine the optimal allocation and payments in each round. Notably, our results establish that in the dynamic case, the seller, on the one hand, commits to a participation reward to incentivize truth-telling, and on the other hand, charges an entry fee for every round. Moreover, the optimal allocation once more involves subsidization in favor of one group, where the extent of subsidization depends on the difference in future utilities for both the seller and buyers when allocating the item to one group versus the other. Finally, we present an approximation scheme to solve the recursive equations and determine an approximately optimal and fair allocation efficiently. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.00147&r= |
| By: | Pablo Guillen; Rami Tabri; Edward Wang |
| Abstract: | We propose a modification of the University Admissions Centre (UAC) mechanism to allow preference lists to be submitted in batches until the applicant is matched to a seat. Batching eliminates truncation and thus recovers strategy-proofness, allowing for the clearinghouse to provide simple advice. The current UAC mechanism uses a constrained list, giving incentives to students to strategize. We test the efficiency of our modification in an individual decision-making matching experiment in which we compare the batched mechanism with the current mechanism, with and without advice. Results show that while the batched mechanism exhibits greater efficiency for student welfare, better advice is required to improve truth-telling and thus avoid suboptimal matches. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:syd:wpaper:2024-13&r= |
| By: | Peter Doe |
| Abstract: | We provide a framework to unify classic models of two-sided matching with recent models of recontracting. In the classic model, agents from two sides must be matched; in models of recontracting, agents improve a status quo match. We generalize the core (matches not blocked by any coalition) from cooperative game theory to our setting by restricting the set of permissible coalitions to coalitions containing neither or both agents in a status quo match, dubbed "agreeable" coalitions. The agreeable core is the set of all weak improvements of the status quo that are not blocked by any agreeable coalition. Our main result is that the agreeable core is nonempty and can be found through a computationally efficient and economically meaningful algorithm: our Propose-Exchange algorithm. The applications of the agreeable core include early decision, out-of-match agreements in the NRMP, matching with minimum constraints, and efficiency in school choice. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.08700&r= |
| By: | François-Charles Wolff (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université); Frédéric Salladaré (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université); Laurent Baranger (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Nantes Univ - IAE Nantes - Nantes Université - Institut d'Administration des Entreprises - Nantes - Nantes Université - pôle Sociétés - Nantes Univ - Nantes Université) |
| Abstract: | While numerous studies have addressed the issue of price formation in first-sale fish markets, little is known about the purchasing decisions of buyers. Using exhaustive data on 11.7 million transactions made in 2021 and 2022 by 1955 buyers in France, we provide an unsupervised classification that reveals the heterogeneous behavior of buyers in terms of quantity purchased, average price paid, number of markets visited, and type of transaction. The results of a hierarchical agglomeration cluster analysis led to eight buyer groups. We show that there are a small number of very active buyers, both at auction and over-the-counter, who purchase daily in large quantities and at many different markets, and whose main activity is wholesale. We find that the price-quantity elasticity values for first sales are very low, but the price paid by large buyers is even less sensitive to quantity than that observed for other buyer groups. |
| Keywords: | First-sale fish markets, Buyers, First-sale price, Auction, Price-quantity elasticity |
| Date: | 2024–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04586532&r= |
| By: | Seungjin Han; Alex Sam; Youngki Shin |
| Abstract: | We study monotone equilibrium design by a planner who chooses an interval of reactions that receivers take before senders and receivers move in matching markets with signaling. In our nonlinear settings, surplus efficiency frontier is convex with decreasing-returns-to-scale information technology. The optimal reaction interval crucially depends on the ripple effect of its lower bound and the trade-off between matching inefficiency and signaling cost savings in the top pooling region generated by its upper bound. Our analysis generates cohesive market design results that integrate the literature on minimum wage, firm size distribution, and relative risk aversion. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.01886&r= |
| By: | Mike Neuder; Mallesh Pai; Max Resnick |
| Abstract: | Byzantine fault-tolerant consensus protocols have provable safety and liveness properties for static validator sets. In practice, however, the validator set changes over time, potentially eroding the protocol's security guarantees. For example, systems with accountable safety may lose some of that accountability over time as adversarial validators exit. As a result, protocols must rate limit entry and exit so that the set changes slowly enough to ensure security. Here, the system designer faces a fundamental trade-off. Slower exits increase friction, making it less attractive to stake in the first place. Faster exits provide more utility to stakers but weaken the protocol's security. This paper provides the first systematic study of exit queues for Proof-of-Stake blockchains. Given a collection of validator-set consistency constraints imposed by the protocol, the social planner's goal is to provide a constrained-optimal mechanism that minimizes disutility for the participants. We introduce the MINSLACK mechanism, a dynamic capacity first-come-first-served queue in which the amount of stake that can exit in a period depends on the number of previous exits and the consistency constraints. We show that MINSLACK is optimal when stakers equally value the processing of their withdrawal. When stakers values are heterogeneous, the optimal mechanism resembles a priority queue with dynamic capacity. However, this mechanism must reserve exit capacity for the future in case a staker with a much higher need for liquidity arrives. We conclude with a survey of known consistency constraints and highlight the diversity of existing exit mechanisms. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.05124&r= |
| By: | Waterson, Michael (University of Warwick); Wojciechowska , Olga |
| Abstract: | We examine bidders’ behaviour in auction sales of the iPhone4 on eBay in the context of a significant shortage of the product at listed price, leading to achieved prices significantly above the posted price, on average. We examine the behaviour of sellers then test the direct prediction of the successive auctions model that bidders increase their bids over successive auctions and are influenced by the effects of information gained from previous auctions, finding that bidders indeed react both to their direct experience and to experience gained from studying previous auctions. In addition, the results are suggestive of bidders being reluctant to reveal their true valuation of the product initially but that they do so only over time. Our results are novel in being able to track individual bidders’ behaviour rather than simply auction outcomes. |
| Keywords: | Repeated auctions ; eBay ; consumer valuations JEL Codes: L63 ; L81 ; D12 ; D44 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1498&r= |
| By: | Gregorio Curello |
| Abstract: | We study decision problems under uncertainty involving the choice of a rule mapping states into actions. We show that for any rule, there exists an increasing rule generating higher expected value for all payoff functions that are supermodular in action and state. We present applications to problems of taxation, betting, and price-discrimination in markets with demand externalities. We then consider rules mapping noisy signals of the state into actions. Under some conditions, optimal rules are increasing when (a) several agents are constrained to choose a single rule or (b) the relationship between signal and state is ambiguous. Moreover, standard informativeness criteria apply. |
| Keywords: | monotone comparative statics, rearrangement, optimal taxation, price discrimination, uncertainty, informativeness |
| JEL: | C61 D71 D81 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_567&r= |
| By: | Niklas Klarnskou; Philippos Louis; Wouter Passtoors |
| Abstract: | We use a lab experiment to examine the effect of feedback on bidder behavior in procurement e-auctions. We compare ‘Rank-only’ to ‘show lead bid’ feedback, two regimes applied frequently by procurement professionals. A choice among the two is often based on rules-of-thumb that rely on initial ‘bid compression’, i.e. the spread of the bids submitted pre-auction. The use of such criteria finds no support in existing economic theory. A common assumption in theoretical auction models is that bidders face no opportunity cost from participating in a dynamic auction. This may not hold in situations where the expected value of a contract does not justify a long-time commitment to the bidding process on the part of bidders. In our experiment participants face the choice of remaining active in an auction vs. exiting and being rewarded with a diminishing outside option. Showing the lead bid accelerated bidders’ learning. In the presence of opportunity costs, this can lead to substantially different outcomes conditional on the initial bid compression. With low bid compression, the bidder with the lowest cost wins more frequently, enhancing efficiency, but faces reduced competition by the others, which hurts the buyer’s potential outcome. The opposite is true when bid compression is high. Rank only feedback achieved similar overall levels of efficiency, with higher benefits for the buyer. Crucially, these outcomes are not as sensitive to initial bid compression as in the case of ‘show lead bid’ feedback. A discouragement effect emerging in the ‘Show-lead-bid’, but not in the ‘Rank-only’ regime can explain these results. |
| Keywords: | Procurement auctions, feedback, opportunity cost, competition, bid compression, discouragement effect, lab experiment |
| JEL: | C92 D44 D83 |
| Date: | 2024–06–14 |
| URL: | https://d.repec.org/n?u=RePEc:ucy:cypeua:04-2024&r= |
| By: | Gregorio Curello; Ludvig Sinander |
| Abstract: | In the canonical persuasion model, comparative statics has been an open question. We answer it, delineating which shifts of the sender's interim payoff lead her optimally to choose a more informative signal. Our first theorem identifies a coarse notion of 'increased convexity' that we show characterises those shifts of the senders interim payoff that lead her optimally to choose no less informative signals. To strengthen this conclusion to 'more informative' requires further assumptions: our second theorem identifies the necessary and sufficient condition on the sender's interim payoff, which strictly generalises the 'S' shape commonly imposed in the literature. We identify conditions under which increased alignment of interests between sender and receiver lead to comparative statics, and study a number of applications. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_564&r= |
| By: | Gregorio Curello; Ludvig Sinander |
| Abstract: | We identify a new dynamic agency problem: that of incentivising the prompt disclosure of productive information. To study it, we introduce a general model in which a technological breakthrough occurs at an uncertain time and is privately observed by an agent, and a principal must incentivise disclosure via her control of a payoff-relevant physical allocation. We uncover a deadline structure of optimal mechanisms: they have a simple deadline form in an important special case, and a graduated deadline structure in general. We apply our results to the design of unemployment insurance schemes. |
| Keywords: | Incentive design, delegation, verifiable evidence |
| JEL: | D82 D86 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_562&r= |
| By: | Irene Maria Buso; Daniela Di Cagno; Werner Gueth; Lorenzo Spadoni |
| Abstract: | We investigate, both theoretically and experimentally, an institutional mechanism designed to enhance cooperation. In this mechanism, contributors have the option to voluntarily contribute to the public good and decide whether to join a (sub)group where partners equally share the contribution cost. Theoretically, stable cost-sharing partnerships enhance efficiency since their partners fully contribute, while outsiders would free-ride. Our data reveal that individual joining and contribution behaviors do not always align with benchmark predictions: partnerships are not always formed, and when they are, they are not always of the optimal size; partners often contribute less than maximally, and outsiders more than minimally. Nonetheless, we document systematic evidence of partnership formation and significantly improved provision of public goods across rounds. |
| Keywords: | Public Good, Group Formation, Group Size, Experiments |
| JEL: | C92 H41 D85 |
| Date: | 2024–06–01 |
| URL: | https://d.repec.org/n?u=RePEc:pie:dsedps:2024/309&r= |
| By: | Duarte Gon\c{c}alves; Bruno A. Furtado |
| Abstract: | This paper tackles challenges in pricing and revenue projections due to consumer uncertainty. We propose a novel data-based approach for firms facing unknown consumer type distributions. Unlike existing methods, we assume firms only observe a finite sample of consumers' types. We introduce \emph{empirically optimal mechanisms}, a simple and intuitive class of sample-based mechanisms with strong finite-sample revenue guarantees. Furthermore, we leverage our results to develop a toolkit for statistical inference on profits. Our approach allows to reliably estimate the profits associated for any particular mechanism, to construct confidence intervals, and to, more generally, conduct valid hypothesis testing. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.17178&r= |