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on Economic Design |
| By: | Taylor Knipe; Josue Ortega |
| Abstract: | The Deferred Acceptance algorithm (DA) frequently produces Pareto inefficient allocations in school choice problems. While a number of efficient mechanisms that Pareto-dominate DA are available, a normative question remains unexplored: which students should benefit from efficiency enhancements? We address it by introducing the concept of \emph{maximally improvable students}, who benefit in every improvement over DA that includes as many students as possible in set-inclusion terms. We prove that common mechanisms such as Efficiency-Adjusted DA (EADA) and Top Trading Cycles applied to DA (DA+TTC) can fall significantly short of this benchmark. These mechanisms may only improve two maximally-improvable students when up to $n-1$ could benefit. Addressing this limitation, we develop the Maximum Improvement over DA mechanism (MIDA), which generates an efficient allocation that maximises the number of students improved over DA. We show that MIDA can generate fewer blocking pairs than EADA and DA+TTC, demonstrating that its distributional improvements need not come at the cost of high justified envy. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.12871 |
| By: | Kun Zhang |
| Abstract: | Standard procurement models assume that the buyer knows the quality of the good at the time of procurement; however, in many settings, the quality is learned only long after the transaction. We study procurement problems in which the buyer's valuation of the supplied good depends directly on its quality, which is unverifiable and unobservable to the buyer. For a broad class of procurement problems, we identify procurement mechanisms maximizing any weighted average of the buyer's expected payoff and social surplus. The optimal mechanism can be implemented by an auction that restricts sellers to submit bids within specific intervals. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.15555 |
| By: | Rey, Patrick; Loertscher, Simon; Marx, Leslie |
| Abstract: | We develop the procurement analogue to an all-pay auction for an independent private values model with identical distributions. In this all-receive procurement auction (ARPA), suppliers simultaneously submit bids. Suppliers with bids below (above) the reserve are paid their bids (are paid and produce nothing). The supplier with the largest bid below the reserve produces the good. With appropriately chosen reserves, which decrease in the number of suppliers, the ARPA is efficient and, given increasing virtual costs, implements the optimal procurement. Appropriately adjusted, ARPAs implement the optimal procurement in general. ARPAs can render supply chains resilient to nonanticipated liquidity shocks. |
| Keywords: | Resilience; Liquidity shocks; All-pay auctions; Multiple-receive procurement auctions |
| JEL: | D44 D82 L41 |
| Date: | 2025–04–29 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130525 |
| By: | Will Sandholtz; Andrew Tai |
| Abstract: | In many object allocation problems, some of the objects may effectively be indistinguishable from each other, such as with dorm rooms or school seats. In such cases, it is reasonable to assume that agents are indifferent between identical copies of the same object. We call this setting ``objective indifferences.'' Top trading cycles (TTC) with fixed tie-breaking has been suggested and used in practice to deal with indifferences in object allocation problems. Under general indifferences, TTC with fixed tie-breaking is not Pareto efficient nor group strategy-proof. Furthermore, it may not select the core, even when it exists. Under objective indifferences, agents are always and only indifferent between copies of the same object. In this setting, TTC with fixed tie-breaking maintains Pareto efficiency, group strategy-proofness, and core selection. In fact, we present domain characterization results which together show that objective indifferences is the most general setting where TTC with fixed tie-breaking maintains these important properties. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.18144 |
| By: | Yao Cheng; Jingsheng Yu; Ling Zheng |
| Abstract: | Many real matching markets encounter distributional and fairness constraints. Motivated by the Chinese Major Transition Program (CMT), this paper studies the design of exchange mechanisms within a fresh framework of both distributional and dual priority-respecting constraints. Specifically, each student has an initial assigned major and applies to transfer to a more desirable one. A student can successfully transfer majors only if they obtain eligibility from both their initial major and the applied major. Each major has a dual priority: a strict priority over current students who wish to transfer out and a strict priority over students from other majors who wish to transfer in. Additionally, each major faces a ceiling constraint and a floor constraint to regulate student distribution. We show that the existing mechanisms of CMT result in avoidable inefficiencies, and propose two mechanisms that can match students to majors in an efficient way as well as respecting each major's distributional and dual priority. The efficient mechanisms are based on a proposed solution concept: eligibility maximization (EM), and two processes for identifying improvement cycles--specifically, transfer-in exchangeable cycles and transfer-out exchangeable cycles. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.12727 |
| By: | Peter Doe |
| Abstract: | In school choice, policymakers consolidate a district's objectives for a school into a priority ordering over students. They then face a trade-off between respecting these priorities and assigning students to more-preferred schools. However, because priorities are the amalgamation of multiple policy goals, some may be more flexible than others. This paper introduces a model that distinguishes between two types of priority: a between-group priority that ranks groups of students and must be respected, and a within-group priority for efficiently allocating seats within each group. The solution I introduce, the unified core, integrates both types. I provide a two-stage algorithm, the DA-TTC, that implements the unified core and generalizes both the Deferred Acceptance and Top Trading Cycles algorithms. This approach provides a method for improving efficiency in school choice while honoring policymakers' objectives. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.09357 |
| By: | Ophir Friedler; Hu Fu; Anna Karlin; Ariana Tang |
| Abstract: | Platforms design the form of presentation by which sellers are shown to the buyers. This design not only shapes the buyers' experience but also leads to different market equilibria or dynamics. One component in this design is through the platform's mediation of the search frictions experienced by the buyers for different sellers. We take a model of monopolistic competition and show that, on one hand, when all sellers have the same inspection costs, the market sees no stable price since the sellers always have incentives to undercut each other, and, on the other hand, the platform may stabilize the price by giving prominence to one seller chosen by a carefully designed mechanism. This calls to mind Amazon's Buy Box. We study natural mechanisms for choosing the prominent seller, characterize the range of equilibrium prices implementable by them, and find that in certain scenarios the buyers' surplus improves as the search friction increases. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.14793 |
| By: | Rebecca Dizon-Ross; Ariel D. Zucker |
| Abstract: | Personalizing policies can theoretically increase their effectiveness. However, personalization is difficult when individual types are unobservable and the preferences of policymakers and individuals are not aligned, which could cause individuals to misreport their type. Mechanism design offers a strategy to overcome this issue: offer an “incentive-compatible” menu of policy choices designed to induce participants to select the variant intended for their type. Using a field experiment that personalized incentives for exercise among 6, 800 adults with diabetes and hypertension in urban India, we show that personalizing with an incentive-compatible choice menu substantially improves program performance, increasing the treatment effect of incentives on exercise by 80% without increasing program costs relative to a one-size-fits-all benchmark. Mechanism design achieves similar performance to personalizing with an extensive set of observable variables, but without the high data requirements or the risk that participants might manipulate their observables. |
| JEL: | D82 I12 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33624 |
| By: | Manuel Foerster (Bielefeld University); Daniel Habermacher (Universidad de los Andes) |
| Abstract: | We revisit the trade-off between keeping authority and granting decisionrights to an informed agent. We introduce transfers, allowing the agent to charge a fee for her services, but she may also offer the principal a side payment. In equilibrium, the principal’s contracting decision maximizes the aggregate payoff. In particular, introducing transfers changes the contracting decision from centralization to delegation and improves efficiency if delegation maximizes the aggregate payoff but requires a side payment. We then introduce general delegation mechanisms. We first show that the agent, behaving ex ante like a social planner would do, restricts the discretion ofher interim self in equilibrium. We then derive the optimal delegation set and show that centralization will occur with optimal delegation only if it is informative. Our results contribute to the debate over subsidiaries in multinational corporations, showing how transfers can induce the parties to act in the headquarters’ interest. |
| Keywords: | Principal-agent problem, communication, (optimal) delegation, transfers, subsidiaries, private information |
| JEL: | D23 D83 D61 D82 C72 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:361 |
| By: | Luke Boosey; Philip Brookins; Dmitry Ryvkin |
| Abstract: | We study information disclosure policies for contests among groups. Each player endogenously decides whether or not to participate in competition as a member of their group. Within-group aggregation of effort is best-shot, i.e., each group's performance is determined by the highest investment among its members. We consider a generalized all-pay auction setting, in which the group with the highest performance wins the contest with certainty. Players' values for winning are private information at the entry stage, but may be disclosed at the competition stage. We compare three disclosure policies: (i) no disclosure, when the number of entrants remains unknown and their values private; (ii) within-group disclosure, when this information is disclosed within each group but not across groups; and (iii) full disclosure, when the information about entrants is disclosed across groups. For the benchmark case of contests between individuals, information disclosure always reduces expected aggregate investment. However, this is no longer true in group contests: Within-group disclosure unambiguously raises aggregate investment, while the effect of full disclosure is ambiguous. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.20092 |
| By: | Justin Marion; Benjamin Rosa |
| Abstract: | Liquidity management is key in industries with variable cash flows. We study how businesses in the highway construction industry manage cash flow by strategically bidding more on work with an earlier payout—a practice known as front-end loading. We find that small contractors, infrequent bidders, and Disadvantaged Business Enterprises front-end load more intensely, indicating a stronger preference for earlier payment. An equilibrium bidding model highlights a novel pathway through which this preference can affect procurement and its managerial and policy implications. |
| JEL: | D44 D82 D86 H57 L74 R42 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33606 |
| By: | Yasushi Sakai; Parfait Atchade-Adelomou; Ryan Jiang; Luis Alonso; Kent Larson; Ken Suzuki |
| Abstract: | This paper proposes a voting process in which voters allocate fractional votes to their expected utility in different domains: over proposals, other participants, and sets containing proposals and participants. This approach allows for a more nuanced expression of preferences by calculating the result and relevance within each node. We modeled this by creating a voting matrix that reflects their preference. We use absorbing Markov chains to gain the consensus, and also calculate the influence within the participating nodes. We illustrate this method in action through an experiment with 69 students using a budget allocation topic. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.13641 |