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on Economic Design |
| By: | Di Feng; Yun Liu |
| Abstract: | This paper introduces a novel measurement of informational size to school choice problems, which inherits its ideas from Mount and Reiter (1974). This concept measures a matching mechanism's information size by counting the maximal relevant preference and priority rankings to secure a certain pairwise assignment of a student to a school across all possible matching problems. Our analysis uncovers two key insights. First, the three prominent strategy-proof matching mechanisms, the deferred acceptance (DA) mechanism, the top trading cycles (TTC) mechanism, and the serial dictatorship (SD) mechanism, is (strictly) less informative than the non-strategy-proof immediate acceptance (IA) mechanism. This result highlights a previously omitted advantage of IA in term of its information demand, which partially explain the its popularity in real-world matching problems especially when acquiring information is both pecuniarily and cognitively costly. Second, when the matching problem contains at least four students, the TTC demands less information compared to the DA to implement a desired allocation. The issue of comparison between TTC and DA has puzzled researchers both in theory (Gonczarowski and Thomas, 2023) and in experiment (Hakimov and Kubler, 2021). Our result responds to this issue from an informational perspective: in experiments with relatively fewer students, agents tend to prefer DA over TTC as DA requires fewer information to secure one's allocation in all problems (Guillen and Veszteg, 2021), while the opposite is true when the market size increases (Pais et al., 2011). Among others, our informational size concept offers a new perspective to understand the differences in auditability (Grigoryan and Moller, 2024), manipulation vulnerability (Pathak and Sonmez, 2013), and privacy protection (Haupt and Hitzig, 2022), among some commonly used matching mechanisms. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.11273 |
| By: | Palacios-Huerta, Ignacio; Parkes, David C.; Steinberg, Richard |
| Abstract: | We survey the uses of combinatorial auctions that have been deployed in practice, giving emphasis to their key representational and economic aspects. In addition, we discuss behavioral economics considerations on both the bidder and auctioneer sides of the market, and the interrelated topics of simplicity and trust, highlighting key opportunities for future work. |
| Keywords: | AAM requested |
| JEL: | D44 D91 |
| Date: | 2024–06–01 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:124108 |
| By: | Sharma, Shashidharan |
| Abstract: | This paper aims to address a gap in literature at the intersection of cheating in auctions and emotional responses. In a second price auction with a cheating seller, we model the bidder's dislike for the possibility of cheating by drawing upon the idea of reference point-based utility. A symmetric increasing equilibrium strategy is characterised and comparative statics are analysed. A comparison of expected payoffs to honest and dishonest sellers is made. We find that if reference points are low enough then the cheating seller's payoff is lower than what a seller earns in a regular first-price auction. Our results show that even with bidders disliking cheating, honest sellers lose out due to bidders shading their bids to accommodate for the possibility of being cheated. |
| Keywords: | Second Price Auctions, Reference Dependence, Emotional Responses |
| JEL: | D44 D89 |
| Date: | 2022–12–27 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121492 |
| By: | Biais, Bruno (HEC Paris); Gersbach, Hans (ETH Zurich - CER-ETH -Center of Economic Research; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)); Rochet, Jean Charles (University of Geneva); von Thadden, Ernst-Ludwig (Universitaet Mannheim; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)); Villeneuve, Stéphane (University of Toulouse 1) |
| Abstract: | We analyze dynamic capital allocation and risk sharing between a principal and many agents, who privately observe their output. Incentive compatibility requires that agents bear part of their idiosyncratic risk. The larger the agents' risk exposure, the larger the rents the principal can extract from them. The optimal mechanism can be implemented as the equilibrium of a market where agents exchange goods for money, needed to pay taxes. Inflation affects agents' portfolio choice between risky capital and safe money. To implement the optimal mechanism, the principal targets an inflation rate such that agents' risk exposure is the same in equilibrium and in the mechanism. |
| Keywords: | Money; Taxes; Mechanism Design; Incentive Compatibility; Inflation |
| JEL: | D50 D80 E50 G11 |
| Date: | 2023–09–22 |
| URL: | https://d.repec.org/n?u=RePEc:ebg:heccah:1490 |
| By: | Santiago Izquierdo-Tort; Seema Jayachandran; Santiago Saavedra |
| Abstract: | Payments for Ecosystem Services (PES) are a widely used approach for forest conservation through which people are paid to avoid deforesting land they enroll in the program. We present findings from a randomized trial in Mexico that tested whether a PES contract that requires enrollees to enroll all of their forest is more effective than the traditional PES contract that allows them to exercise choice. The modification's aim is to prevent landowners from enrolling only parcels they planned to conserve anyway while leaving aside other parcels to deforest. We find that the full-enrollment treatment reduces deforestation by 41% compared to the traditional contract. This extra conservation occurs despite the full-enrollment provision reducing the compliance rate due to its more stringent requirements. The full-enrollment treatment more than quadrupled cost-effectiveness, highlighting the potential to substantially improve the efficacy of conservation payments through simple contract modifications. |
| JEL: | O13 Q23 Q56 Q57 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32689 |
| By: | Geromichalos, Athanasios; Wang, Yijing |
| Abstract: | In monetary theory, money is typically introduced as an object that can help agents bypass frictions, such as anonymity and limited commitment. Consequently, common wisdom suggests that if agents had access to more unsecured credit these frictions would become less severe and welfare would improve. In similar spirit, common wisdom suggests that as societies get access to more alternative (to money) payment instruments, i.e., more ways to bypass the aforementioned frictions, welfare would also increase. We show that for a large variety of settings and market structures this common wisdom is not accurate. If the alternative means of payment is sufficient to cover all the liquidity needs of the economy, then indeed the economy will reach maximum welfare. However, if access to this alternative payment system is relatively low to begin with, increasing it can hurt the economy’s welfare, and we characterize in detail the set of parameters for which this result can arise. Our model offers a simple explanation to a recent empirical literature suggesting that increased access to credit is often followed by declined economic activity. |
| Keywords: | monetary-search models, over-the-counter markets, credit, liquidity, welfare |
| JEL: | E31 E43 E52 G12 |
| Date: | 2024–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121388 |
| By: | Rosina Rodríguez Olivera |
| Abstract: | I study the incentives of an informed firm to share its private information with its competitor and the incentives of a regulator to constrain or enforce disclosure in order to benefit consumers. Firms offer differentiated goods, compete a là Bertrand and one firm has an information advantage about demand over its competitor. I show that full disclosure of information is optimal for the informed firm, because it increases price correlation and surplus extraction from consumers. A regulator can increase expected consumer surplus and welfare by restricting disclosure, but consumers can benefit from the regulator privately disclosing some information to the competitor. Disclosure increases the ability of firms to extract surplus from consumers, but private disclosure creates a coordination failure in firm pricing. The optimal disclosure policy is chosen to induce goods to be closer substitutes and intensify the competition across firms. |
| Keywords: | Competition, Information |
| JEL: | D18 D43 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_578 |
| By: | Christoph Carnehl; Marco Ottaviani; Justus Preusser |
| Abstract: | This paper overviews the economics of scientific grants, focusing on the interplay between the inherent uncertainty in research, researchers' incentives, and grant design. Grants differ from traditional market systems and other science and innovation policy tools, such as prizes and patents. We outline the main economic forces specific to science, noting the limited attention given to grant funding in the economics literature. Using tools from information economics, we identify key incentive problems at various stages of the grant funding process and offer guidance for effective grant design. In the allocation stage, funders aim to select the highest-merit applications while minimizing evaluation costs. The selection rule, in turn, impacts researchers' incentives to apply and invest in their proposals. In the grant management stage, funders monitor researchers to ensure efficient use of funds. We discuss the advantages and potential pitfalls of (partial) lotteries and emphasize the effectiveness of staged grant design in promoting a productive use of grants. Beyond these broadly applicable insights, our overview highlights the need for further research on grantmaking. Understudied areas include, at the micro level, the interplay of different grant funding stages, and at the macro level, the interaction of grants with other instruments in the market for science. |
| JEL: | D83 H81 I23 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32668 |
| By: | Cesa-Bianchi, Nicol`o; Colomboni, Roberto; Kasy, Maximilian |
| Abstract: | We consider the problem of repeatedly choosing policies to maximize social welfare. Welfare is a weighted sum of private utility and public revenue. Earlier outcomes inform later policies. Utility is not observed, but indirectly inferred. Response functions are learned through experimentation. We derive a lower bound on regret, and a matching adversarial upper bound for a variant of the Exp3 algorithm. Cumulative regret grows at a rate of T2/3. This implies that (i) welfare maximization is harder than the multi-armed bandit problem (with a rate of T1/2 for finite policy sets), and (ii) our algorithm achieves the optimal rate. For the stochastic setting, if social welfare is concave, we can achieve a rate of T1/2 (for continuous policy sets), using a dyadic search algorithm. We analyze an extension to nonlinear income taxation, and sketch an extension to commodity taxation. We compare our setting to monopoly pricing (which is easier), and price setting for bilateral trade (which is harder). (Stone Center on Socio-Economic Inequality Working Paper) |
| Date: | 2024–07–31 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:bgcjk |
| By: | Dietz, Fabian; Sahm, Marco |
| Abstract: | We examine the effects of endogenous sequences on the fairness in round-robin tournaments with four players, multiple prizes, and general contest technologies. A tournament is called horizontally ex-ante fair if symmetric contestants have the same expected payoffs (odds) before the tournament starts. It is called perfectly fair if the winning probabilities in each match depend only on the players' characteristics but not on the position of the match in the course of the tournament. We show that there is no sequence which implies perfect fairness. By contrast, some endogenous sequences imply horizontal ex-ante fairness irrespective of the prize structure. In winner-take-all tournaments, additional endogenous sequences are horizontally ex-ante fair. Our findings question the prevailing use of exogenous sequences in four-player roundrobin tournaments in commercial sports despite horizontally ex-ante fair alternatives. |
| Keywords: | Sequential Round-Robin Tournament, Endogenous Sequence, Contest Success Function, Multiple Prizes, Fairness |
| JEL: | C72 D72 Z20 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bamber:300669 |
| By: | Martin Peitz |
| Abstract: | In this chapter, I review the economic theory of two-sided platforms. First, I elaborate on the prevailing price structure in monopoly and oligopoly and explore the prevailing market structure. Second, I consider the choice of non-price strategies that affect users on the platform and address the horizontal and vertical scope of platforms. |
| Keywords: | Two-sided platform, price theory, digital markets, network effects, platform design |
| JEL: | L12 L13 L41 L42 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_584 |
| By: | Felipe Araujo; Alex Imas; Alistair Wilson |
| Abstract: | We demonstrate the pitfalls when extrapolating behavioral findings across different contexts and decision environments. We focus on regret theory and the use of “regret lotteries” for motivating behavior change. Here, findings from one-shot settings have been used to promote regret as a tool to boost incentives in recurrent decisions across many settings. Using theory and experiments, we replicate regret lotteries as the superior one-shot incentive; however, for repeated decisions the comparative static is entirely reversed. Moreover, the effects are extremely sensitive to details of regret implementation. Our results suggest caution should be used when designing incentive schemes that exploit regret. |
| JEL: | D0 D03 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32759 |
| By: | Witte, Felix; Sponagel, Christian; Bahrs, Enno |
| Abstract: | In 2021 and 2022, the German economy saw substantial price increases for inputs and products. This paper uses tractor auctions (n=753) from 2018 to 2022 to analyze price developments in the German used tractor market. In addition to determining mean price increases over time, the focus of this paper is on identifying possible influences of manufacturer and engine power on this development, using multiple linear regressions and quantile regressions. To the best of our knowledge, these have not yet been used for hedonic price models of agricultural machinery. The analysis is complemented by considering the start of the construction of the tractor series to identify technical progress as a possible cause of price increases. Our results, taking into account this series information, show an overall price increase of 29% in 2022 compared to 2018, with no de facto price increases in 2019 and 2020. This increase is independent of the manufacturer. Motorization, on the other hand, has a statistically and economically significant effect. More powerfully motorized tractors have experienced a stronger price increase than less powerfully motorized ones. The price trends shown are consistent with producer prices for new tractors. This speaks for the validity of our approach. No differences in price increases over time were found for the different quantiles of the auction result. However, statistically significant quantile-dependent differences in tractor devaluation do occur, providing a case for further research. Technical progress has a positive and statistically significant impact on the development of nominal prices of used tractors. Overall, our results are relevant for every domain with a need for current evaluations of agricultural machinery, such as in the field of insurance. Especially farmers can gain insights about investment decisions for example the choice between buying a new or used tractor. The insights of the technical progress can be further used for investment calculations and considerations of optimal replacement. |
| Keywords: | Research and Development/Tech Change/Emerging Technologies |
| Date: | 2023–09–01 |
| URL: | https://d.repec.org/n?u=RePEc:ags:gewi23:344232 |