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on Economic Design |
| By: | Yuma Fujimoto; Kaito Ariu; Kenshi Abe |
| Abstract: | Auction is one of the most representative buying-selling systems. A celebrated study shows that the seller's expected revenue is equal in equilibrium, regardless of the type of auction, typically first-price and second-price auctions. Here, however, we hypothesize that when some auction environments vary with time, this revenue equivalence may not be maintained. In second-price auctions, the equilibrium strategy is robustly feasible. Conversely, in first-price auctions, the buyers must continue to adapt their strategies according to the environment of the auction. Surprisingly, we prove that revenue equivalence can be broken in both directions. First-price auctions bring larger or smaller revenue than second-price auctions, case by case, depending on how the value of an item varies. Our experiments also demonstrate revenue inequivalence in various scenarios, where the value varies periodically or randomly. This study uncovers a phenomenon, the breaking of revenue equivalence by the time-varyingness in auctions, that likely occurs in real-world auctions, revealing its underlying mechanism. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.12306 |
| By: | Bettina Klaus |
| Abstract: | We consider a housing market model with limited externalities where agents care both about their own consumption via demand preferences and about the agent who receives their endowment via supply preferences (we extend the associated lexicographic preference domains introduced in Klaus and Meo, 2023). If preferences are demand lexicographic, then our model extends the classical Shapley-Scarf housing market (Shapley and Scarf, 1974) with strict preferences model. Our main result is a characterization of the corresponding top trading cycles (TTC) rule by individual rationality, pair efficiency, and strategy-proofness (Theorem 1), which extends that of Ekici (2024) from classical Shapley-Scarf housing markets with strict preferences to our model. Two further characterizations are immediately obtained by strengthening pair efficiency to either Pareto efficiency or pairwise stability (Corollaries 1 and 2). Finally, we show that as soon as we extend the preference domain to include demand lexicographic as well as supply lexicographic preferences (e.g., when preferences are separable), no rule satisfying individual rationality, pair efficiency, and strategy-proofness exists (Theorem 2). |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.16745 |
| By: | Pranjal Rawat |
| Abstract: | Traditional methods for computing equilibria in auctions become computationally intractable as auction complexity increases, particularly in multi-item and dynamic auctions. This paper introduces a self-play based reinforcement learning approach that employs advanced algorithms such as Proximal Policy Optimization and Neural Fictitious Self-Play to approximate Bayes-Nash equilibria. This framework allows for continuous action spaces, high-dimensional information states, and delayed payoffs. Through self-play, these algorithms can learn robust and near-optimal bidding strategies in auctions with known equilibria, including those with symmetric and asymmetric valuations, private and interdependent values, and multi-round auctions. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.13960 |
| By: | Kento Yoshida; Kei Kimura; Taiki Todo; Makoto Yokoo |
| Abstract: | Facility location games provide an abstract model of mechanism design. In such games, a mechanism takes a profile of $n$ single-peaked preferences over an interval as an input and determines the location of a facility on the interval. In this paper, we restrict our attention to distance-based single-peaked preferences and focus on a well-known class of parameterized mechanisms called ordered weighted average methods, which is proposed by Yager in 1988 and contains several practical implementations such as the standard average and the Olympic average. We comprehensively analyze their performance in terms of both incentives and fairness. More specifically, we provide necessary and sufficient conditions on their parameters to achieve strategy-proofness, non-obvious manipulability, individual fair share, and proportional fairness, respectively. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.12884 |
| By: | James Albrecht; Xiaoming Cai; Pieter Gautier; Susan Vroman; Pieter A. Gautier |
| Abstract: | This paper considers competitive search equilibrium in a market for a good whose quality differs across sellers. Each seller knows the quality of the good that he or she is offering for sale, but buyers cannot observe quality directly. We thus have a “market for lemons” with competitive search frictions. In contrast to Akerlof (1970), we prove the existence of a unique equilibrium, which is separating. Higher-quality sellers post higher prices, so price signals quality. The arrival rate of buyers is lower in submarkets with higher prices, but this is less costly for higher-quality sellers given their higher continuation values. For some parameter values, higher-quality sellers post the full-information price; for other values these sellers have to post a higher price to keep lower-quality sellers from mimicking them. In an extension, we show that if sellers compete with auctions, the reserve price can also act as a signal. |
| Keywords: | competitive search, signaling |
| JEL: | C78 D82 D83 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11309 |
| By: | Masaki Aoyagi (ISER, Osaka University); Maxime Menuet (Université Côte d'Azur, CNRS, GREDEG, France) |
| Abstract: | This paper studies the optimal disclosure of information about an agent's quality when it is a combination of a component privately observed by the agent and another latent component. Upon soliciting a report from the agent about his private observation, a principal performs a test which reveals the latent component. The principal then discloses information to the market/public which rewards the agent with compensation equal to the agent's expected quality. We study incentive compatible disclosure rules that minimize the mismatch between the agent's true and expected qualities while inducing truth-telling from the agent. The optimal rule entails full disclosure when the agent's quality is a supermodular function of the two components, but entails partial pooling when it is submodular. We express the optimization problem as a linear transformation of the mean dual-belief, which describes the joint distribution of prior and mean posterior beliefs under disclosure, and obtain the optimal disclosure rule as a corner solution to this linear problem. We identify the number of messages required under the optimal rule and relate it to the agent's incentive compatibility conditions. |
| Keywords: | quality, mechanism, revelation, pooling, separating |
| JEL: | C72 D47 D82 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:gre:wpaper:2024-30 |
| By: | Rim Berahab |
| Abstract: | Carbon pricing mechanisms are central to mitigating climate change. These mechanisms work by internalizing the costs associated with greenhouse gas emissions, thus encouraging emissions reductions and promoting technological progress in favor of sustainable alternatives. However, the implementation of carbon pricing mechanisms faces numerous complexities and challenges, especially in developing countries, given the potentially regressive impact of carbon pricing on low-income groups, and the general lack of socio- political support. This policy paper offers a comparative review of two market-based carbon pricing strategies—carbon taxes and emissions trading systems (ETS)—to shed light on their effectiveness, implementation, and capacity to generate revenue. It also argues that carbon pricing should be integrated into a comprehensive policy framework that addresses both national priorities and international equity considerations, in order to effectively address global climate change. The effectiveness of these policies depends largely on their design and adaptation to the specific political and economic contexts in which they are implemented. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:rpaeco:pp_07-24 |
| By: | Cartuyvels, Jacques (Université catholique de Louvain, LIDAM/CORE, Belgium); Bertrand, Gilles (ACER); Papavasiliou, Anthony (NTUA) |
| Abstract: | This paper provides a framework for analyzing the interaction of imbalance settlement with the clearing of real-time energy and reserve markets. We characterize the optimal strategies of price-taking flexibility providers that can participate in sequential capacity auctions for automatic and manual frequency restoration reserves, followed by an auction that is conducted by the system operator for activating balancing energy. We establish equilibria based on three market features: (i) reserve demand curves, (ii) the activation strategy implemented by the system operator, and (iii) the imbalance settlement scheme. The optimal activation strategy is derived and the effect of the imbalance pricing scheme on bidding incentives, cost efficiency, and reserve prices is discussed. |
| Keywords: | Electricity Markets Design ; Balancing Markets ; Multi-Product Markets ; Reserve |
| Date: | 2024–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:cor:louvco:2024007 |
| By: | Dirk Bergemann (Yale University); Stephen Morris (Massachusetts Institute of Technology); Rafael Veiel (Massachusetts Institute of Technology) |
| Abstract: | Two information structures are said to be close if, with high probability, there is approximate common knowledge that interim beliefs are close under the two information structures. We define an Òalmost common knowledge topologyÓ reflecting this notion of closeness. We show that it is the coarsest topology generating continuity of equilibrium outcomes. An information structure is said to be simple if each player has a finite set of types and each type has a distinct first-order belief about payoff states. We show that simple information structures are dense in the almost common knowledge topology and thus it is without loss to restrict attention to simple information structures in information design problems. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2413 |
| By: | Herings, P.J.J. (Tilburg University, Center For Economic Research) |
| Keywords: | Many-to-one Matching; Competitive Equilibrium; Dreze equilibrium; Expectational Equilibrium; stable outcomes |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:tiu:tiucen:2818f6ae-f3b0-4b5e-9222-a0a6fd48785b |
| By: | Xun, Yang (University of Warwick) |
| Abstract: | Talent is a key input in the delivery of public services, yet less is known about whataffects the supply of talent for the public sector. This paper studies the role of political corruption in shifting talent allocation across public and private sector careers. I exploit a randomized anti-corruption audit program in Brazil together with comprehensive micro-data on educational and labor market outcomes of college students. Using a generalized difference-in-difference research design, I find that high-ability students in audited municipalities are less likely to choose majors tailored toward public sector careers, such as business administration and law. Moreover, tracking students to the labor market demonstrates that audits also lead to a lower share of high-ability students working as civil servants. Finally, I provide suggestive evidence that the effects of audits on talent allocation can be driven by the perception of lower rent-seeking returns and higher reputation costs. Taken together, these findings highlight an understudied negative consequence of corruption on the economy : the distortion of talent allocation toward rent-seeking in the public sector. |
| Keywords: | Corruption ; Audits ; Talent Allocation ; Major Choice ; Public Sector JEL Codes: D73 ; H83 ; I25 ; J24 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1526 |
| By: | Dehez, Pierre (Université catholique de Louvain, LIDAM/CORE, Belgium); Ferey, Samuel (University of Lorraine) |
| Abstract: | Leniency programs in antitrust investigations exist in Europe since the late nineties. They cover secret agreements and concerted practices between companies, and provide total or partial immunity to companies reporting evidence. This raises the question of assessing correctly the contribution of each company that take part in a leniency program. This question is formalized within a cooperative game with transferable utility. The resulting game being convex, its core is nonempty and contains the Shapley value in its center. It defines a reference allocation that treats the participants symmetrically. In practice, companies report sequentially leading to allocations that are vertices of the core. |
| Keywords: | Competition law ; leniency programs ; core ; Shapley value |
| JEL: | L40 K21 C71 |
| Date: | 2024–05–13 |
| URL: | https://d.repec.org/n?u=RePEc:cor:louvco:2024008 |