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on Economic Design |
| By: | Borgers, Timan (University of Michigan); Li, Jiangtao (Singapore Management University); Wang, Kexin (Singapore Management University) |
| Abstract: | We study the design of mechanisms when the designer faces multiple plausible scenarios and is uncertain about the true scenario. A mechanism is dominated by another if the latter performs at least as well in all plausible scenarios and strictly better in at least one. A mechanism is undominated if no other feasible mechanism dominates it. We show how analyzing undominated mechanisms could be useful and illustrate the tractability of characterizing such mechanisms. This approach provides an alternative criterion for mechanism design under non-Bayesian uncertainty, complementing existing methods. |
| Keywords: | Robust Mechanism Design; Undominated Mechanisms; Maxmin Approrach; Regret Minimization; Second-price Auction; Random Reserve Price |
| Date: | 2024–11–02 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:2024_012 |
| By: | Bettina Klaus; Flip Klijn; Jay Sethuraman |
| Abstract: | We provide the first characterization of the prominent top-trading-cycles (TTC) mechanism in the Shapley-Scarf housing market model (Shapley and Scarf, 1974) that uses respecting-improvement. Specifically, we show that for strict preferences, the TTC mechanism is the unique mechanism satisfying pair-efficiency, respecting-improvement, and strategy-proofness. |
| Keywords: | housing markets, top-trading-cycles (TTC) mechanism, respecting improvement, pair-efficiency, strategy-proofness, market design |
| JEL: | C78 D47 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1468 |
| By: | Moshe Babaioff; Noam Manaker Morag |
| Abstract: | We consider the problem of allocating heterogeneous and indivisible goods among strategic agents, with preferences over subsets of goods, when there is no medium of exchange. This model captures the well studied problem of fair allocation of indivisible goods. Serial-quota mechanisms are allocation mechanisms where there is a predefined order over agents, and each agent in her turn picks a predefined number of goods from the remaining goods. These mechanisms are clearly strategy-proof, non-bossy, and neutral. Are there other mechanisms with these properties? We show that for important classes of strict ordinal preferences (as lexicographic preferences, and as the class of all strict preferences), these are the only mechanisms with these properties. Importantly, unlike previous work, we can prove the claim even for mechanisms that are not Pareto-efficient. Moreover, we generalize these results to preferences that are cardinal, including any valuation class that contains additive valuations. We then derive strong negative implications of this result on truthful mechanisms for fair allocation of indivisible goods to agents with additive valuations. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.11131 |
| By: | Nadia Gui\~naz\'u; Noelia Juarez; Pablo Neme; Jorge Oviedo |
| Abstract: | This paper presents weakened notions of corewise stability and setwise stability for matching markets where agents have substitutable choice functions. We introduce the concepts of worker-quasi-core, firm-quasi-core, and worker-quasisetwise stability. We also examine their relationship to established notions in the literature, such as worker-quasi and firm-quasi stability in both many-to-one and many-to-many markets. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.12533 |
| By: | Pasha Andreyanov; Ilia Krasikov; Alex Suzdaltsev |
| Abstract: | We study buyer-optimal procurement mechanisms when quality is contractible. When some costs are borne by every participant of a procurement auction regardless of winning, the classic analysis should be amended. We show that an optimal symmetric mechanism is a scoring auction with a score function that may be either flatter or steeper than classically. This depends on the relative degrees of information asymmetry over the all-pay and winner-pay costs. However, the symmetry of the optimal mechanism is not granted due to the presence of all-pay costs. When ex-post efficiency is less important than the duplication of costs, favoritism becomes optimal. We show that, depending on the degree of convexity of costs, the solution takes one of two novel formats with a partially asymmetric treatment of firms, which we call a score floor and a score ceiling auction. Interestingly, these auctions feature side payments from or to the buyer, which has nothing to do with corruption. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.12714 |
| By: | Terence Highsmith Ii |
| Abstract: | In many local foster care systems across the United States, child welfare practitioners struggle to effectively match children in need of a home to foster families. We tackle this problem while navigating a key sensitivity in this domain: in foster care systems, individual caseworkers must assent to any proposed matching. We codify this constraint in one-sided matching markets as the problem of matching design with sufficiency. We design a mechanism that guarantees outcome sufficiency, a form of welfare-maximizing Pareto efficiency ensuring that no caseworker can ex-post gain from any child-family placement reassignment and that the foster care authority's objective preferences for child-family placements are maximally satisfied. Our work subsequently evaluates this mechanism's strategic properties. Finally, we plan to conduct a lab-in-the-field experiment to elicit real-world caseworkers' preferences and estimate the child welfare gains our algorithm produces. Current simulation-based results show dramatic improvements to welfare. Designing sufficient matching systems is an example of mechanism-reform because replacing existing systems without regard for existing agents' preferences and wishes has previously resulted in failure. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.12860 |
| By: | Tetsutaro Hatakeyama (Graduate School of Economics, Keio University); Onur Kesten (School of Economics, University of Sydney); Morimitsu Kurino (Faculty of Economics, Keio University) |
| Abstract: | Priorities over agents are crucial primitives in assignment problems of indivisible objects without monetary transfers. Motivated by the student assignment problem to exchange programs in Japan, we introduce the so-called prioritization problem: how does one go about allocating overdemanded goods when each agent possesses one of several attributes while priority orders are established only among agents sharing the same attribute? Other applications include rationing of medical supplies, elective surgery scheduling, visa assignment and affirmative action. We show that two types of assignment protocols stand out when basic fairness and efficiency requirements are pursued in a consistent manner when randomization is used only as a last resort. |
| Keywords: | Priority-based assignment, Equity in attributes, Market design |
| JEL: | C78 D47 D78 |
| Date: | 2024–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:keo:dpaper:2024-023 |
| By: | Dmitriy Taubman; Boris Gleyzer; Ke Yang; Farhad Rassekh |
| Abstract: | This paper designs a market algorithm for fractional ownership of an indivisible asset. It provides an efficient market mechanism, named Direct Fractional Auction (DFA) that offers valuable assets to both small and large investors who can become partial owners of such assets. Additionally, it introduces procedures and algorithms with DFA to determine the optimal winning combinations of unaffiliated bidders. DFA, on the one hand, transfers the partial ownership to the winners and, on the other, redirects the proceeds from the auctions to the sellers. We show that the DFA algorithm works more efficiently than the Greedy algorithm in maximizing the seller's value. We also demonstrate the possibility of reducing the complexity of the problem using the "pruning" method for data pre-processing. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.11606 |
| By: | Ying Xue Li; Burkhard C. Schipper (Department of Economics, University of California Davis) |
| Abstract: | When bidders bid on complex objects, they might be unaware of characteristics effecting their valuations. We assume that each buyer's valuation is a sum of independent random variables, one for each characteristic. When a bidder is unaware of a characteristic, he omits the random variable from the sum. We study the seller's decision to raise bidders' awareness of characteristics before a second-price auction with entry fees. Optimal entry fees capture an additional unawareness rent due to unaware bidders misperceiving their probability of winning and the price to be paid upon winning. When raising a bidder's individual awareness of a characteristic with positive expected value, the seller faces a trade-off between positive effects on the expected first order statistic and unawareness rents of remaining unaware bidders on one hand and the loss of the unawareness rent from the newly aware bidder on the other. We present characterization results on raising public awareness together with no versus full information. We discuss the winner's curse due to unawareness of characteristics. |
| Keywords: | Unawareness, disclosure, optimal second-price auctions with independent private values, winner's curse, entry fees |
| JEL: | C72 D44 D83 |
| Date: | 2024–12–16 |
| URL: | https://d.repec.org/n?u=RePEc:cda:wpaper:365 |
| By: | Federico Echenique (UC Berkeley); Matías Núñez (CREST, CNRS, Ecole Polytechnique, ENSAE) |
| Abstract: | We describe a sequential mechanism that fully implements the set of efficient outcomes in environments with quasi-linear utilities. The mechanism asks agents to take turns in defining prices for each outcome, with a final player choosing an outcome for all: Price & Choose. The choice triggers a sequence of payments, from each agent to the preceding agent. We present several extensions. First, payoff inequalities may be reduced by endogenizing the order of play. Second, our results extend to a model without quasi-linear utility, to a setting with an outside option, robustness to max-min behavior and caps on prices. |
| Keywords: | Efficiency, Subgame-perfect implementation, Mechanism, Prices. |
| JEL: | D71 D72 |
| Date: | 2024–05–15 |
| URL: | https://d.repec.org/n?u=RePEc:crs:wpaper:2024-15 |
| By: | Steven Callander (Stanford University, Stanford Graduate School of Business); Hongyi Li (University of New South Wales, School of Economics) |
| Abstract: | Innovations bring many benefits to society, but they can also bring harm. We study the problem of a regulator deciding whether to approve an innovation where information about the impact of the innovation is held within the firms that are developing it. We show that competition for the innovation undermines the regulator’s ability to extract the information she needs to make good policy. As the number of firms increases and the expected benefit of the innovation grows, the probability that the regulator is persuaded to approve an innovation decreases. This tension between competition and communication reverses Arrow’s famous “replacement effect.” Thus, in regulated markets, more competition can lead to fewer innovations making it to market. We explore how this tension can be mitigated, but not eliminated, by political and market design. |
| Keywords: | Innovation, regulation, competition |
| JEL: | L51 O31 D82 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:swe:wpaper:2024-07 |
| By: | Nicol\`o Cesa-Bianchi; Tommaso Cesari; Roberto Colomboni; Luigi Foscari; Vinayak Pathak |
| Abstract: | We consider a sequential decision-making setting where, at every round $t$, a market maker posts a bid price $B_t$ and an ask price $A_t$ to an incoming trader (the taker) with a private valuation for one unit of some asset. If the trader's valuation is lower than the bid price, or higher than the ask price, then a trade (sell or buy) occurs. If a trade happens at round $t$, then letting $M_t$ be the market price (observed only at the end of round $t$), the maker's utility is $M_t - B_t$ if the maker bought the asset, and $A_t - M_t$ if they sold it. We characterize the maker's regret with respect to the best fixed choice of bid and ask pairs under a variety of assumptions (adversarial, i.i.d., and their variants) on the sequence of market prices and valuations. Our upper bound analysis unveils an intriguing connection relating market making to first-price auctions and dynamic pricing. Our main technical contribution is a lower bound for the i.i.d. case with Lipschitz distributions and independence between prices and valuations. The difficulty in the analysis stems from the unique structure of the reward and feedback functions, allowing an algorithm to acquire information by graduating the "cost of exploration" in an arbitrary way. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2411.13993 |