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on Economic Design |
| By: | Satoru Fujishige; Zaifu Yang |
| Abstract: | We propose a novel strategy-proof dynamic auction for efficiently allocating heterogeneous indivisible commodities. The auction applies to all unimodular demand types of Baldwin and Klemperer’s necessary and sufficient condition for the existence of competitive equilibrium which accommodate a variety of complements, substitutes, gross substitutes and complements, and any other kinds. Although bidders are not assumed to be price-takers so they can act strategically, this auction induces bidders to bid truthfully, yielding efficient outcomes. Sincere bidding is shown to be an ex post perfect Nash equilibrium of the auction. The trading rules are simple, detail-free, privacy-preserving, error-tolerant, and independent of any probability distribution assumption. |
| Keywords: | Dynamic Auction Design, Equilibrium, Incentive Compatibility, Unimodular Demand Types, Indivisibility, Incomplete Information. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:yor:yorken:25/02 |
| By: | Burkhard C. Schipper; Tina Danting Zhang (Department of Economics, University of California Davis) |
| Abstract: | We study dynamic decentralized two-sided matching in which players may encounter unanticipated experiences. As they become aware of these experiences, they may change their preferences over players on the other side of the market. Consequently, they may get ``divorced'' and rematch again with other agents, which may lead to further unanticipated experiences etc. A matching is stable if there is absence of pairwise common belief in blocking. Stable matchings can be destabilized by unanticipated experiences. Yet, we show that there exist self-confirming outcomes that are stable and do not lead to further unanticipated experiences. We introduce a natural decentralized matching process that, at each period assigns probability 1 - epsilon to the satisfaction of a mutual optimal blocking pair (if it exists) and picks any optimal blocking pair otherwise. The parameter epsilon is interpreted as a friction of the matching market. We show that for any decentralized matching process, frictions are necessary for convergence to stability even without unawareness. Our process converges to self-confirming stable outcomes. Further, we allow for bilateral communication/flirting that changes the awareness and say that a matching is flirt-proof stable if there is absence of communication leading to pairwise common belief in blocking. We show that our natural decentralized matching process converges to flirt-proof self-confirming outcomes. |
| Keywords: | decentralized matching, unawareness, transformative experiences, endogenous preferences, disclosure |
| JEL: | D83 C70 |
| Date: | 2025–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:cda:wpaper:371 |
| By: | Thami, Prakriti (Department of Economics, Lund University) |
| Abstract: | This paper studies the impact of truth-telling preferences on aggregate consumer welfare within a priority pricing (PP) mechanism. Traditional models assume individuals always misrepresent private information to maximize payoffs, yet recent evidence suggests there may be an innate preference for truth-telling. By incorporating these preferences into a theoretical framework, I show that PP enhances welfare over uniform pricing only when the probability of non-truthful individuals surpasses a critical threshold, suggesting that PP may benefit populations with low truth-telling tendencies but reduce welfare when this tendency is high. To empirically test this, I conducted an online experiment, finding that while PP incentivized truth-telling, its impact did not vary significantly across groups with differing truth-telling tendencies. Instead, participants’ beliefs about others' truthfulness emerged as key in shaping behavior. These findings underscore that PP’s welfare-enhancing potential depends not only on incentives created by the pricing structure but also on the population's truth-telling tendencies and beliefs, offering valuable insight for designing effective pricing mechanisms. |
| Keywords: | priority pricing; consumer welfare; truth-telling behavior; incentive-compatible pricing |
| JEL: | D47 D61 D82 D90 |
| Date: | 2025–03–25 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:lunewp:2025_003 |
| By: | Christian Trudeau (Department of Economics, University of Windsor); Edward C. Rosenthal (Department of Statistics, Operations, and Data Science, Fox School of Business, Temple University) |
| Abstract: | We consider a set of users who are located along a pipeline with a single source. These users consume a good that is extracted from the source and flows downstream, with diminishing marginal returns for each user. In addition, flows along each edge in the pipeline create negative externalities, which are nondecreasing as a function of flow. The users cooperate toward obtaining group welfare maximization. In both the continuous and discrete cases, we obtain the group optimal solutions, and we then use cooperative game theory to determine how best to allocate the damages, using optimistic and pessimistic formulations for the characteristic function. Using core stability as our guiding principle, we provide a set of stable allocations that apportions the damages at a location among the set of downstream users, notably an average damage allocation and a marginal damage allocation. Given that the joint optimization forces agents to reduce (unequally) their consumption, we also examine the Shapley value of the optimistic game, also in the core, that allows to compensate agents who have sacrificed their consumption for the benefit of the group. Finally, we show that our pipeline externalities model generalizes some well-known problems from the literature, including the river sharing problem of Ambec and Sprumont 2002 and the joint production problem of Moulin and Shenker 1992. |
| Keywords: | game theory; network flows; pipeline externalities; core; redistribution. |
| JEL: | C71 D63 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:wis:wpaper:2502 |