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on Economic Design |
| By: | Ollar, Mariann; Penta, Antonio |
| Abstract: | We study a framework for robust mechanism design that can accommodate various degrees of robustness with respect to agents’ beliefs, and which includes both the belief-free and Bayesian settings as special cases. For general belief restrictions, we characterize the set of incentive compatible direct mechanisms in general environments with interdependent values. The necessary conditions that we identify, based on a first-order approach, provide a unified view of several known results, as well as novel ones, including a robust version of the revenue equivalence theorem that holds under a notion of generalized independence that also applies to non-Bayesian settings. Our main characterizations informthe design of belief-based terms, in pursuit of various objectives in mechanism design, including attaining incentive compatibility in environments that violate standard single-crossing and monotonicity conditions. We discuss several implications of these results. For instance, we show that, under weak conditions on the belief restrictions, any allocation rule can be implemented, but full rent extraction need not follow. Information rents are generally possible, and they decrease monotonically as the robustness requirements are weakened. |
| Keywords: | Moment Conditions; Robust Mechanism Design; Incentive Compatibility; Interdependent Values; Belief Restrictions |
| JEL: | D62 D82 D83 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129650 |
| By: | Bo Chen; Marco Serena; Zijia Wang |
| Abstract: | We study all-pay auctions with private and affiliated binary values. To increase revenue (i.e., expected aggregate bid), the auction organizer can commit ex ante to fully disclosing or concealing bidders’ valuations. We find that full disclosure, as opposed to full concealment, always increases bidders’ expected payoffs. If affiliation in bidders’ valuations is low, full disclosure lowers ex ante expected revenue. If affiliation is high: 1) with two bidders, full disclosure lowers expected revenue, and 2) with many bidders, it tends to increase expected revenue. When the low valuation is zero, the auction becomes one with stochastic but affiliated participation, and information disclosure affects neither bidders’ payoffs nor the expected revenue. |
| Keywords: | All-pay auction, Affiliation, Stochastic participation, Disclosure policies |
| JEL: | C72 D44 D82 |
| URL: | https://d.repec.org/n?u=RePEc:mpi:wpaper:tax-mpg-rps-2023-05 |
| By: | Deniz Kattwinkel; Alexander Winter |
| Abstract: | A group of privately informed agents chooses between two alternatives. How should the decision rule be designed if agents are known to be biased in favor of one of the options? We address this question by considering the Condorcet Jury Setting as a mechanism design problem. Applications include the optimal decision mechanisms for boards of directors, political committees, and trial juries. While we allow for any kind of mechanism, the optimal mechanism is a voting mechanism. In the terminology of the trial jury example: When jurors (agents) are more eager to convict than the lawmaker (principal), then the defendant should be convicted if and only if neither too many nor too few jurors vote to convict. This kind of mechanism accords with a judicial procedure from ancient Jewish law. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.07293 |
| By: | Agustín Bonifacio (UNSL-CONICET); Noelia Juarez (UNSL-CONICET); Paola Manasero (UNSL-CONICET) |
| Abstract: | We compute the lattice operations for the (pairwise) stable set in two-sided matching markets where only substitutability on agents’ choice functions is imposed. To dothis, we use Tarski operators defined on the lattices of worker-quasi-stable and firmquasi-stable matchings. These operators resemble lay-off and vacancy chain dynamics, respectively. First, we compute the lattice operations in the many-to-one model. Then, we extend these operations to a many-to-many model with substitutable choicefunctions on one side and responsive preferences on the other, via a morphism that relates many-to-one with many-to-many matchings in a natural way. Finally, we presentthe lattice operations in the many-to-many model with substitutable choice functionson both sides. |
| Keywords: | two-sided matching, worker-quasi-stability, firm-quasi-stability, Tarski operator, lattice operations, re-equilibration |
| JEL: | C78 D47 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:333 |
| By: | Josue Ortega; Gabriel Ziegler; R. Pablo Arribillaga |
| Abstract: | The Efficiency-Adjusted Deferred Acceptance (EADA) mechanism corrects the Pareto-inefficiency of the celebrated Deferred Acceptance (DA) algorithm, assigning every student to a weakly more preferred school. Nonetheless, it is unclear which and how many students do not improve their DA placement under EADA. We show that, despite all its merits, EADA never benefits pupils who are either assigned to their worst-ranked schools or unmatched under DA. It also limits the placement improvement of marginalized students, preserving school segregation. The placement of the worst-off student under EADA may be unreasonably bad, even though significantly more egalitarian allocations are possible. Finally, we provide a bound on the expected number of unimprovable students using a random market approach. Our results help to understand why EADA fails to reduce the inequality generated by DA in empirical evaluations of school choice mechanisms. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.19831 |
| By: | Peyman Khezr |
| Abstract: | Secondary markets and resale are integral components of all emission trading systems. Despite the justification for these secondary trades, such as unpredictable demand, they may encourage speculation and result in the misallocation of permits. In this paper, our aim is to underscore the importance of efficiency in the initial allocation mechanism and to explore how concerns leading to the establishment of secondary markets, such as uncertain demand, can be addressed through alternative means, such as frequent auctions. We demonstrate that the existence of a secondary market could lead to higher untruthful bids in the auction, further encouraging speculation and the accumulation of rent. Our results suggest that an inefficient initial allocation could enable speculators with no use value for the permits to bid in the auction and subsequently earn rents in secondary markets by trading these permits. Even if the secondary market operates efficiently, the resulting rent, which represents a potential loss of auction revenue, cannot be overlooked. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.07386 |
| By: | Dongwoo Kim; Pallavi Pal |
| Abstract: | This paper presents an empirical model of sponsored search auctions where advertisers are ranked by bid and ad quality. Our model is developed under the ‘incomplete information’ setting with a general quality scoring rule. We establish nonparametric identification of the advertiser’s valuation and its distribution given observed bids and introduce novel nonparametric estimators. Using Yahoo! search auction data, we estimate value distributions and study the bidding behavior across product categories. We also conduct counterfactual analysis to evaluate the impact of different quality scoring rules on the auctioneer’s revenue. Product specific scoring rules can enhance auctioneer revenue by at most 24.3% at the expense of advertiser profit (-28.3%) and consumer welfare (-30.2%). The revenue maximizing scoring rule depends on market competitiveness. |
| Date: | 2024–08–12 |
| URL: | https://d.repec.org/n?u=RePEc:azt:cemmap:16/24 |
| By: | Federico Echenique; Teddy Mekonnen; M. Bumin Yenmez |
| Abstract: | We use majorization to model comparative diversity in school choice. A population of agents is more diverse than another population of agents if its distribution over groups is less concentrated: being less concentrated takes a specific mathematical meaning borrowed from the theory of majorization. We adapt the standard notion of majorization in order to favor arbitrary distributional objectives, such as population-level distributions over race/ethnicity or socioeconomic status. With school admissions in mind, we axiomatically characterize choice rules that are consistent with modified majorization, and constitute a principled method for admitting a diverse population of students into a school. Two important advantages of our approach is that majorization provides a natural notion of diversity, and that our axioms are independent of any exogenous priority ordering. We compare our choice rule to the leading proposal in the literature, ``reserves and quotas, '' and find ours to be more flexible. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.17589 |
| By: | Peiran Xiao |
| Abstract: | I study the optimal design of performance or product ratings to motivate agents' performance or investment in product quality. The principal designs a rating that maps their quality (performance) to possibly stochastic scores. Agents have private information about their abilities (cost of effort/quality) and choose their quality. The market observes the scores and offers a wage equal to the agent's expected quality [resp. ability]. I first show that an incentive-compatible interim wage function can be induced by a rating (i.e., feasible) if and only if it is a mean-preserving spread of quality [resp. ability]. Thus, I reduce the principal's rating design problem to the design of a feasible interim wage. When restricted to deterministic ratings, the optimal rating design is equivalent to the optimal delegation with participation constraints (Amador and Bagwell, 2022). Using optimal control theory, I provide necessary and sufficient conditions under which lower censorship, and particularly a simple pass/fail test, are optimal within deterministic ratings. In particular, when the principal elicits maximal effort (quality), lower censorship [resp. pass/fail] is optimal if the density is unimodal [resp. increasing]. I also solve for the optimal deterministic ratings beyond lower censorship for general distributions and preferences. For general ratings, I provide sufficient conditions under which lower censorship remains optimal. In the effort-maximizing case, a pass/fail test remains optimal if the density is increasing. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.10525 |
| By: | Di Feng; Jacob Coreno |
| Abstract: | We consider the house allocation problems with strict preferences, where monetary transfers are not allowed. We propose two properties in the spirit of justified fairness. Interestingly, together with other well-studied properties (strategy-proofness and non-bossiness), our two new properties identify serial dictatorships and sequential dictatorships, respectively. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.14101 |
| By: | Aner Sela (BGU); Yizhaq Minchuk (Department of Industrial Engineering and Management, Shamoon College of Engineering, Beer-Sheva) |
| Keywords: | All-pay auctions, incomplete information, taxation, subsidies |
| JEL: | C72 D44 H25 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bgu:wpaper:2407 |
| By: | Guillaume Bataille (Aix Marseille Université); Benteng Zou (DEM, Université du Luxembourg) |
| Abstract: | Motivated by recent examples, this study proposes a dynamic multistage optimal control problem to explain the instability of International Fishery Agreements (IFAs). We model two heterogeneous countries that exploit shared fishery resources, and investigate the conditions that lead to a shift from cooperation to competition. We assume that countries differ in their time preferences, initially behave as if the coalition will last indefinitely, use fixed sharing rules during cooperation, and adopt Markovian strategies after withdrawal. Our findings reveal that, for any sharing rule, coalitions of heterogeneous players always break down in finite time. We use the dynamic Shapley Value to decompose the coalition’s aggregate worth over time, thereby eliminating the incentive to leave the agreement. Additionally, we show that a fishing moratorium policy accelerates the recovery of near-extinct fish stocks; however, fishing should resume under a cooperative regime once sustainable levels are achieved. |
| Keywords: | Fisheries, International Fishery Agreements, Dynamic games, Multistage Optimal Control. |
| JEL: | C71 C72 Q22 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:luc:wpaper:24-06 |
| By: | Gorkem Celik; Roland Strausz |
| Abstract: | We consider a monopolistic certifier selling certification services to a partially privately informed seller. The certifier can enable the seller to disclose her private information publicly, as well as gather additional market information about the good's quality publicly. We show that the certifier's optimal contract exhibits maximal disclosure but non-maximal information-gathering. Thus, optimal contracts eliminate private information but not market uncertainty; even though the latter would be costless, it is suboptimal as it requires excessive information rents to the seller. Thus, market inefficiencies remain due to market uncertainty but not due to private information. |
| Keywords: | certification, disclosure, information gathering, optimal information revelation, private information |
| JEL: | D82 |
| Date: | 2024–08–09 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0045 |
| By: | Ricardo Martinez; Juan D. Moreno-Ternero |
| Abstract: | We take an axiomatic approach to the allocation of riparian water rights. We formalize ethical or structural properties as axioms of allocation rules. We show that several combinations of these axioms characterize focal rules implementing the principle of Territorial Integration of all Basin States in various forms. One of them connects to the Shapley value, the long-standing centerpiece of cooperative game theory. The others offer natural compromises between the polar principles of Absolute Territorial Sovereignty and Unlimited Territorial Integrity. We complete our study with an empirical application to the allocation of riparian water rights in the Nile River. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.14623 |
| By: | Navarra, Federico; Pino, Flavio; Sandrini, Luca |
| Abstract: | We study a hybrid marketplace where a vertically integrated platform competes with a seller in a horizontally differentiated downstream market. The platform has a data advantage and can price discriminate consumers, whereas the seller cannot. Our analysis shows that, by properly setting the per-unit transaction fee, the platform can always avoid head-to-head competition with the seller, regardless of the level of horizontal differentiation. Mandating data-sharing, which allows the seller to also price discriminate, does not seem to solve this problem and, in fact, aggravates it further, generally benefiting the platform. The seller is better off only if it is less efficient than the platform, whereas consumers are worse off. We propose that preventing the platform from adjusting the fee after the data-sharing mandate is not enough to reinstate competition in the downstream market. We then show that banning the hybrid business model and forbidding the use of data for price discrimination increase consumer surplus, even if the seller becomes a monopolist. In other words, we propose that the harm to competition comes from the platform's business model rather than from its information advantage. |
| Keywords: | hybrid platforms, data-sharing, vertical integration, price discrimination |
| JEL: | D42 L12 L41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:300680 |
| By: | Kangle Mu; Zongyun Xie; Igor Kadota; Randall Berry |
| Abstract: | With the increasing demand for wireless services, spectrum management agencies and service providers (SPs) are seeking more flexible mechanisms for spectrum sharing to accommodate this growth. Such mechanisms impact the market dynamics of competitive SPs. Prior market models of spectrum sharing largely focus on scenarios where competing SPs had identical coverage areas. We depart from this and consider a scenario in which two competing SPs have overlapping but distinct coverage areas. We study the resulting competition using a Cournot model. Our findings reveal that with limited shared bandwidth, SPs might avoid overlapping areas to prevent potential losses due to interference. Sometimes SPs can strategically cooperate by agreeing not to provide service in the overlapping areas and, surprisingly, customers might also benefit from such cooperation under certain circumstances. Overall, market outcomes exhibit complex behaviors that are influenced by the sizes of coverage areas and the bandwidth of the shared spectrum. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.20909 |
| By: | Steven J. Brams; Mehmet S. Ismail |
| Abstract: | We introduce a novel system of matching and scoring players in tournaments, called Multi-Tier Tournaments, illustrated by chess and based on the following rules: 1. Players are divided into skill-based tiers, based on their Elo ratings. 2. Starting with one or more mini-tournaments of the least skilled players (Tier 1), the winner or winners -- after playing multiple opponents -- move to the next-higher tier. 3. The winners progress to a final tier of the best-performing players from lower tiers as well as players with the highest Elo ratings. 4. Performance in each tier is given by a player's Tournament Score (TS), which depends on his/her wins, losses, and draws (not on his/her Elo rating). Whereas a player's Elo rating determines in which mini-tournament he/she starts play, TS and its associated tie-breaking rules determine whether a player moves up to higher tiers and, in the final mini-tournament, wins the tournament. This combination of players' past Elo ratings and current TS's provides a fair and accurate measure of a player's standing among the players in the tournament. We apply a variation of Multi-Tier Tournaments to the top 20 active chess players in the world (as of February 2024). Using a dataset of 1209 head-to-head games, we illustrate the viability of giving lower-rated players the opportunity to progress and challenge higher-rated players. We also briefly discuss the application of Multi-Tier Tournaments to baseball, soccer, and other sports that emphasize physical rather than mental skills. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.13845 |