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on Economic Design |
| By: | Leandro Arozamena (UTDT-CONICET); Juan José Ganuza (Universitat Pompeu Fabra); Federico Weinschelbaum (UTDT-CONICET) |
| Abstract: | A sponsor –e.g. a government agency– uses a procurement auction to select a supplier who will be in charge of the execution of a contract. That contract is incomplete: it may be renegotiated once the auction’s winner has been chosen. We examine a setting where one firm may bribe the agent in charge of monitoring contract execution so that the former is treated preferentially if renegotiation actually occurs. If a bribe is accepted, the corrupt firm will be more aggressive at the initial auction and thus win with a larger probability. We show that the equilibrium probability of corruption is larger when the initial contract is less complete, and when the corrupt firm’s cost is more likely to be similar to her rivals’. In addition, we examine how this influences the sponsor’s incentives when designing the initial contract. |
| Keywords: | Auctions, Cost overruns, Procurement, Renegotiation, Corruption |
| JEL: | C72 D44 D82 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:334 |
| By: | Mallesh Pai; Max Resnick |
| Abstract: | We show that Execution Tickets and Execution Auctions dramatically increase centralization in the market for block proposals, even without multi-block MEV concerns. Previous analyses have insufficiently or incorrectly modeled the interaction between ahead-of-time auctions and just-in-time (JIT) auctions. We study a model where bidders compete in an execution auction ahead of time, and then the winner holds a JIT auction to resell the proposal rights when the slot arrives. During the execution auction, bidders only know the distribution of their valuations. Bidders then draw values from their distributions and compete in the JIT auction. We show that a bidder who wins the execution auction is substantially advantaged in the JIT auction since they can set a reserve price higher than their own realized value for the slot to increase their revenue. As a result, there is a strong centralizing force in the execution auction, which allows the ex-ante strongest bidder to win the execution auction every time, and similarly gives them the strongest incentive to buy up all the tickets. Similar results trivially apply if the resale market is imperfect, since that only reinforces the advantages of the ex-ante strong buyer. To reiterate, these results do not require the bidders to employ multi-block MEV strategies, although if they did, it would likely amplify the centralizing effects. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.03116 |
| By: | Gong, Doudou; Dietzenbacher, Bas (RS: GSBE other - not theme-related research, QE Math. Economics & Game Theory) |
| Abstract: | In many models of resource allocation, agents are characterized by certain rights, needs, or demands. We impose the requirement that all agents who are not fully compensated are assigned the same amount, and explore it in the models of claims problems, division problems with single-peaked preferences, and division problems with single-dipped preferences. In combination with other well-known properties, we obtain respective axiomatizations of the well- known constrained equal awards rule, the uniform rule, and two families of rules for the single-dipped model. |
| JEL: | D63 D71 |
| Date: | 2024–08–19 |
| URL: | https://d.repec.org/n?u=RePEc:unm:umagsb:2024010 |
| By: | Boshuai Zhao; Kai Wang; Wenchao Wei; Roel Leus |
| Abstract: | The Dial-a-Ride Problem (DARP) is an optimization problem that involves determining optimal routes and schedules for several vehicles to pick up and deliver items at minimum cost. Motivated by real-world carpooling and crowdshipping scenarios, we introduce an additional constraint imposing a maximum number on the number of pickups per trip. This results in the Dial-a-Ride Problem with Limited Pickups per Trip (DARP-LPT). We apply a fragment-based method for DARP-LPT, where a fragment is a partial path. Specifically, we extend two formulations from Rist & Forbes (2021): the Fragment Flow Formulation (FFF) and the Fragment Assignment Formulation (FAF). We establish FFF's superiority over FAF, both from a theoretical as well as from a computational perspective. Furthermore, our results show that FFF and FAF significantly outperform traditional arc-based formulations in terms of solution quality and time. Additionally, compared to the two existing fragment sets, one with longer partial paths and another with shorter ones, our newly generated fragment sets perform better in terms of solution quality and time when fed into FFF. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.07602 |
| By: | Mu Lin; Di Zhang; Ben Chen; Hang Zheng |
| Abstract: | Water market is a contemporary marketplace for water trading and is deemed to one of the most efficient instruments to improve the social welfare. In modern water markets, the two widely used trading systems are an improved pair-wise trading, and a 'smart market' or common pool method. In comparison with the economic model, this paper constructs a conceptual mathematic model through the HARA utility functions. Mirroring the concepts such as Nash Equilibrium, Pareto optimal and stable matching in economy, three significant propositions are acquired which illustrate the advantages of the common pool method compared with the improved pair-wise trading. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.05194 |
| By: | Nicolò Cesa-Bianchi; Roberto Colomboni; Maximilian Kasy |
| 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). |
| Keywords: | optimal taxation, multi-armed bandits, experimental design |
| JEL: | C90 H21 C73 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11259 |
| By: | Mark Whitmeyer; Cole Williams |
| Abstract: | In this paper, we reveal that the signal representation of information introduced by Gentzkow and Kamenica (2017) can be applied profitably to dynamic decision problems. We use this to characterize when one dynamic information structure is more valuable to an agent than another, irrespective of what other dynamic sources of information the agent may possess. Notably, this robust dominance is equivalent to an intuitive dynamic version of Brooks, Frankel, and Kamenica (2022)'s reveal-or-refine condition. |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2407.16648 |
| By: | Anderlini, Luca; Felli, Leonardo; Piccione, Michele |
| Abstract: | How do mechanisms that enforce cooperation emerge in a society where none are available and agents are endowed with just raw power that allows a more powerful agent to expropriate a less powerful one? We study a model where expropriation is costly and agents can choose whether to engage in surplus-augmenting cooperation or engage in expropriation. While in bilateral relations, if cooperation is not overwhelmingly productive and expropriation is not too costly, the latter will prevent cooperation, when there are three or more agents, powerful ones can become enforcers of cooperation for agents ranked below them. In equilibrium they will expropriate smaller amounts from multiple weaker cooperating agents who in turn will not deviate for fear of being expropriated more heavily because of their larger expropriation proceeds. Surprisingly, the details of the power structure are irrelevant for the existence of equilibria with enforcement provided that enough agents are present and one is ranked above all others. These details are instead key to the existence of other highly noncooperative equilibria that are obtained in certain cases. |
| Keywords: | Jungle, power structures, enforcement, rule of law |
| JEL: | C79 D00 D01 D31 K19 K40 K49 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:wzbmbh:301156 |