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on Economic Design |
| By: | Aram Grigoryan; Markus M\"oller |
| Abstract: | We introduce a framework where the announcements of a clearinghouse about the allocation process are opaque in the sense that there can be more than one outcome compatible with a realization of type reports. We ask whether desirable properties can be ensured under opacity in a robust sense. A property can be guaranteed under an opaque announcement if every mechanism compatible with it satisfies the property. We find an impossibility result: strategy-proofness cannot be guaranteed under any level of opacity. In contrast, in some environments, weak Maskin monotonicity and non-bossiness can be guaranteed under opacity. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.04509 |
| By: | Andrea Canidio; Felix Henneke |
| Abstract: | Blockchain trade intent auctions currently intermediate approximately USD 5 billion monthly. Due to production complementarities, the auction is combinatorial: when multiple trade intents from different traders are auctioned off simultaneously, a bidder (here called solver) can generate additional efficiencies by winning a batch of multiple trade intents. However, unlike other combinatorial auctions studied in the literature, the auction has no numeraire. Fairness is a concern as the efficiencies from batching cannot be easily shared between traders. We formalize this problem and study the most commonly used auction formats: batch auctions and multiple simultaneous auctions. We also propose a novel fair combinatorial auction that combines batch auction and multiple simultaneous auctions: solvers submit individual-trade bids and batched bids, but batched bids are considered only if they are better for all traders relative to the outcome of multiple simultaneous auctions (constructed using the individual-trade bids). We find a trade-off between the fairness guarantees provided by the auction (i.e., the minimum each trader can expect to receive) and the expected value of the assets returned to the traders. Also, the amount that each trader receives in the equilibrium of the fair combinatorial auction may be higher or lower than what they receive in the equilibrium of the simultaneous auctions used as a benchmark for fairness. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.12225 |
| By: | Moise Blanchard; Patrick Jaillet |
| Abstract: | We study the problem in which a central planner sequentially allocates a single resource to multiple strategic agents using their utility reports at each round, but without using any monetary transfers. We consider general agent utility distributions and two standard settings: a finite horizon $T$ and an infinite horizon with $\gamma$ discounts. We provide general tools to characterize the convergence rate between the optimal mechanism for the central planner and the first-best allocation if true agent utilities were available. This heavily depends on the utility distributions, yielding rates anywhere between $1/\sqrt T$ and $1/T$ for the finite-horizon setting, and rates faster than $\sqrt{1-\gamma}$, including exponential rates for the infinite-horizon setting as agents are more patient $\gamma\to 1$. On the algorithmic side, we design mechanisms based on the promised-utility framework to achieve these rates and leverage structure on the utility distributions. Intuitively, the more flexibility the central planner has to reward or penalize any agent while incurring little social welfare cost, the faster the convergence rate. In particular, discrete utility distributions typically yield the slower rates $1/\sqrt T$ and $\sqrt{1-\gamma}$, while smooth distributions with density typically yield faster rates $1/T$ (up to logarithmic factors) and $1-\gamma$. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.10066 |
| By: | Fabian R. Pieroth; Tuomas Sandholm |
| Abstract: | In practice, most auction mechanisms are not strategy-proof, so equilibrium analysis is required to predict bidding behavior. In many auctions, though, an exact equilibrium is not known and one would like to understand whether -- manually or computationally generated -- bidding strategies constitute an approximate equilibrium. We develop a framework and methods for estimating the distance of a strategy profile from equilibrium, based on samples from the prior and either bidding strategies or sample bids. We estimate an agent's utility gain from deviating to strategies from a constructed finite subset of the strategy space. We use PAC-learning to give error bounds, both for independent and interdependent prior distributions. The primary challenge is that one may miss large utility gains by considering only a finite subset of the strategy space. Our work differs from prior research in two critical ways. First, we explore the impact of bidding strategies on altering opponents' perceived prior distributions -- instead of assuming the other agents to bid truthfully. Second, we delve into reasoning with interdependent priors, where the type of one agent may imply a distinct distribution for other agents. Our main contribution lies in establishing sufficient conditions for strategy profiles and a closeness criterion for conditional distributions to ensure that utility gains estimated through our finite subset closely approximate the maximum gains. To our knowledge, ours is the first method to verify approximate equilibrium in any auctions beyond single-item ones. Also, ours is the first sample-based method for approximate equilibrium verification. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.11445 |
| By: | Brown, David P. (University of Alberta, Department of Economics); Olmstead, Derek E. H. (University of Calgary); Shaffer, Blake (University of Calgary) |
| Abstract: | The electricity sector is going through a period of rapid transition with increasing decarbonization through the growth of renewable energy. In this paper, we consider the case of Alberta which has observed considerable growth in wind and solar generation capacity. We summarize the attributes of Alberta’s energy-only market design and how it interacts with increasing renewable output. We highlight emerging challenges that need to be addressed through careful market redesign and provide a summary of key market design changes that can help more cost-effectively and reliably integrate the growing renewable resources. We discuss ongoing policy developments related to Alberta’s market design. The experiences in Alberta can serve to inform market design in other jurisdictions as regulators work to enact policies to facilitate a higher renewable energy future. |
| Keywords: | Electricity Markets; Regulatory Policy; Renewables; Reliability |
| JEL: | L51 L94 Q28 Q48 |
| Date: | 2024–08–18 |
| URL: | https://d.repec.org/n?u=RePEc:ris:albaec:2024_003 |
| By: | Bailey, Megan (University of Calgary); Brown, David P. (University of Alberta, Department of Economics); Myers, Erica (University of Calgary); Shaffer, Blake (University of Calgary); Wolak, Frank A. (Stanford University) |
| Abstract: | The growth of electric vehicles (EVs) raises new challenges for electricity systems. We implement a field experiment to assess the effect of time-of-use (TOU) pricing and managed charging on EV charging behavior. We find that while TOU pricing is effective at shifting EV charging into off-peak hours, it unintentionally induces new and larger “shadow peaks” of simultaneous charging. These shadow peaks lead to greater exceedance of local capacity constraints and advance the need for distribution network upgrades. In contrast, centrally managed charging solves the coordination problem, reducing transformer capacity requirements, and is well-tolerated by consumers in our setting. |
| Keywords: | Electric Vehicles; Regulation; Rate Design; Field Experiment |
| JEL: | L94 Q41 R40 |
| Date: | 2024–09–10 |
| URL: | https://d.repec.org/n?u=RePEc:ris:albaec:2024_004 |
| By: | Bianchi, Milo; Yamashita, Takuro |
| Abstract: | We analyze the optimal investment in a common infrastructure in a market with network externalities. Taking a dynamic mechanism design perspective, we contrast the level of investment and the associated payments across firms that a budget-constrained welfare-maximizing principal would set to those emerging in an unregulated market. We consider two market scenarios: first, a nascent market in which only one firm operates and an entrant may arrive at a later stage; second, a more mature market in which two firms already operate. In these settings, the principal needs to set access fees so as to provide enough incentives to invest in the infrastructure, while also avoiding wasteful investment. At the same time, the principal needs to coordinate investment and usage of the shared network given the various externalities that each firm exerts. We highlight the relative importance of these two aspects and how regulation can be designed so as to improve social welfare. We also highlight how the optimal timing of investment depends crucially on the regulator’s coordination power. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129665 |
| By: | Natalie Kessler (Vrije Universiteit Amsterdam); Iman van Lelyveld (Vrije Universiteit Amsterdam); Ellen van der Woerd (De Nederlandsche Bank) |
| Abstract: | We rationalize exclusive portfolio dealing in a novel three-period partial equilibrium framework populated by a representative, risk-neutral seller and a small number of ex ante identical broker-dealers. Endowed with independent, uncertain demand for a representative asset, the broker-dealers may compete in prices for exclusivity. If no exclusivity is granted, due to either the lack or seller rejection of offers, the seller enters a second-price auction with a zero-loss reserve price. While seller profits are constant under exclusivity (Bertrand Paradox), auction profits increase in the number of broker-dealers. Therefore, exclusivity arises in equilibrium only for a seller with at most two broker-dealers, reducing the trade frequency by one-third. The results are robust to endogenizing the number of broker-dealers and to allowing for the ex post asymmetry in asset demand. Exclusivity, however, does not arise when the auction features a seller-optimal reserve price. We motivate and conclude with an application to the security lending market. |
| Keywords: | Exclusive Dealing, Intermediated Markets, Competition, Market Efficiency |
| JEL: | G14 G24 D43 D86 |
| Date: | 2024–03–20 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20240019 |
| By: | Raphael Boleslavsky; Aaron Kolb |
| Abstract: | A sender has a privately known preference over the action chosen by a receiver. The sender would like to influence the receiver's decision by providing information, in the form of a statistical experiment or test. The technology for information production is controlled by a monopolist intermediary, who offers a menu of tests and prices to screen the sender's type, possibly including a "threat" test to punish nonparticipation. We characterize the intermediary's optimal screening menu and the associated distortions, which we show may benefit the receiver. We compare the sale of persuasive information with other forms of influence -- overt bribery and controlling access. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2408.03689 |