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on Economic Design |
| By: | Tymofiy Mylovanov; Thomas Tröger |
| Abstract: | A mechanism proposal by a privately informed principal is a signal. The agents' belief updating endogenizes their incentives in the mechanism, implying that such design problems cannot be solved via optimizing subject to incentive constraints. We propose a solution, neo-optimum, that can be interpreted as principal-preferred perfect-Bayesian equilibrium. Its neologism-based definition allows an intuitive computation, as we demonstrate in several applications. Neo-optimum connects the two main established approaches to the problem, by Myerson and by Maskin-Tirole. Any Myerson neutral optimum is a neo-optimum, implying that a neo-optimum generally exists. In private-values environments, neo-optimum is equivalent to strong unconstrained Pareto optimum (Maskin-Tirole) and strong neologism-proofness (Mylovanov-Tröger). In information-design settings, any interim-optimum (Koessler-Skreta) is a neo-optimum. Our methods can be used to reconstruct the perfect-Bayesian equilibria in the informed-principal literature. |
| Keywords: | mechanism-design, informed-principal, neologism |
| JEL: | D47 D82 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_643 |
| By: | Andrew Dillon; Nicolo Tomaselli |
| Abstract: | We study the design of auctions in a low-income country where business licenses for new markets are auctioned to private firms. The field experiment varies two auction design choices: the auction mechanism and the type of information provided to bidders. The results suggest that: i) open auctions, in which bidders implicitly share information with their peers, have up to 61 percent lower mean bid prices and up to 67 percent lower bid variance than closed auctions, in which bidders bid secretly; ii) bidding behavior is influenced by the pre-bid license information provided by the auctioneer as much as by bidders’ ex-ante beliefs; and iii) auctions with real stakes reduce bids by a factor of five relative to non-incentivized auctions. These results underscore the importance of auction design for pricing innovations and the challenges inherent in creating markets in low-income countries where returns to innovations are highly uncertain. |
| Keywords: | Auctions; Asymmetric and Private Information, Mechanism Design, Micro Analysis of Farm Firms, Farm Input Markets |
| JEL: | D44 D82 Q12 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:frz:wpaper:wp2025_03.rdf |
| By: | Matteo Camboni; Mingzi Niu; Mallesh M. Pai; Rakesh Vohra |
| Abstract: | We revisit the classic job-market signaling model of \cite{spence1973job}, introducing profit-seeking schools as intermediaries that design the mapping from candidates' efforts to job-market signals. Each school commits to an attendance fee and a monitoring policy. We show that, in equilibrium, a monopolist school captures the entire social surplus by committing to low information signals and charging fees that extract students' surplus from being hired. In contrast, competition shifts surplus to students, with schools vying to attract high-ability students, enabling them to distinguish themselves from their lower-ability peers. However, this increased signal informativeness leads to more wasteful effort in equilibrium, contrasting with the usual argument that competition enhances social efficiency. This result may be reversed if schools face binding fee caps or students are credit-constrained. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.02328 |
| By: | Itzhak Rasooly (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | In this paper, we design and implement an experiment aimed at testing the level-k model of auctions. We begin by identifying (simple) environments that optimally disentangle the predictions of the level-k model from the natural benchmark of Bayes-Nash equilibrium. We then implement these environments within a virtual laboratory in order to see which theory can best explain observed bidding behaviour. Overall, our findings suggest that, despite its notable success in predicting behaviour in other strategic settings, the level-k model (and its close cousin, cognitive hierarchy) cannot explain behaviour in auctions. |
| Keywords: | Auction, Behavioural game theory, Experimental design, Level-k models |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04328602 |
| By: | Ashwin Kambhampati (United States Naval Academy); Bo Peng (Shanghai University of Finance and Economics); Zhihao Gavin Tang (Shanghai University of Finance and Economics); Juuso Toikka (University of Pennsylvania); Rakesh Vohra (University of Pennsylvania) |
| Abstract: | We consider a principal-agent model with moral hazard, bilateral risk-neutrality, and limited liability. The principal knows only some of the actions the agent can take and evaluates contracts by their guaranteed payoff over possible unknown actions. We show that linear contracts are a robustly optimal way to incentivize the agent: any randomization over contracts can be improved by making each contract in its support linear. We then identify an optimal random linear contract characterized by a single parameter that bounds its continuous support. Several corollaries arise: the gain from randomization can be arbitrarily large; optimal randomization does not require commitment; and screening cannot improve the principal’s guarantee. |
| Date: | 2025–02–06 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:25-004 |
| By: | Fernanda Estevan; Thomas Gall; Patrick Legros; Andrew F. Newman |
| Abstract: | We investigate "top-N percent" policies in college admission as possible instruments for increasing ethnic diversity in high schools. These policies produce incentives for students to relocate to schools with weaker academic competition. We provide theoretical conditions under which such arbitrage contributes to high-school desegregation. We show that arbitrage can neutralize the policy at the college level, and characterize inter-school ows, which display multiplying cascade effects. Our model's predictions are supported by empirical evidence on the effects of the Texas Top-Ten Percent Law, indicating that a policy intended to support diversity in universities actually helped achieve it in high schools. |
| Keywords: | Matching, general equilibrium, affrmative action, education, college admission, high school segregation, Texas Top Ten Percent |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:eca:wpaper:2013/388438 |
| By: | Antonin Macé (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Rafael Treibich (SDU - University of Southern Denmark) |
| Abstract: | We propose a general model of repeated voting in committees and study equilibrium behavior under alternative majority rules. We find that repetition may significantly increase the efficiency of majority voting through a mechanism of intertemporal logrolling, agents sometimes voting against their immediate preference to benefit the group's long-term interest. In turn, this affects the comparison of majority rules, which may differ significantly relative to the static setting. The model provides a rationale for the use of super-majority rules, while accounting for the prevalence of consensus in committee voting. |
| Keywords: | Logrolling, Repeated games, Majority voting, Preference intensities, Consensus |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04610689 |