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on Economic Design |
| By: | Isa Hafalir (University of Technology Sydney); Onur Kesten (University of Sydney); Katerina Sherstyuk (University of Hawaii at Manoa); Cong Tao (University of Technology Sydney) |
| Abstract: | We study a remarkable auction used in several fish markets around the world, notably in Honolulu and Sydney, whereby high-quality fish are sold fast through a hybrid auction that combines the Dutch and the English formats in one auction. Speedy sales are of essence for these perishable goods. Our theoretical model incorporating Òtime costsÓ demonstrates that such Honolulu-Sydney auction is preferred by the auctioneer over the Dutch auction when there are few bidders or when bidders have high time costs. Our laboratory experiments confirm that with a small number of bidders, Honolulu-Sydney auctions are significantly faster than Dutch auctions. Bidders overbid in Dutch, benefiting the auctioneer, but bidding approaches risk-neutral predictions as time costs increase. Bidders fare better in the Honolulu-Sydney format compared to Dutch across all treatments. We further observe bidder attempts to tacitly lower prices in Honolulu- Sydney auctions, substantiating existing concerns about pricing in some fish markets. |
| Keywords: | auction theory, time costs, laboratory experiments |
| JEL: | C7 C92 D02 D44 L0 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:hai:wpaper:202502 |
| By: | Ortega, Josué; Ziegler, Gabriel; Arribillaga, R. Pablo; Zhao, Geng |
| Abstract: | The Deferred Acceptance (DA) mechanism can generate inefficient placements. Although Pareto-dominant mechanisms exist, it remains unclear which and how many students could improve their DA assignment. We characterize the set of unimprovable students and show that it includes those unassigned or matched with their least preferred schools. Nevertheless, by proving that in large markets DA's envy digraph contains a unique giant strongly connected component, we establish that almost all students are improvable, and furthermore, they can benefit simultaneously via disjoint trading cycles. Our findings reveal both the pervasiveness of DA's inefficiency and the remarkable effectiveness of Pareto-dominant mechanisms in addressing it, regardless of the specific mechanism chosen. |
| Keywords: | unimprovable students, school choice, random markets |
| JEL: | C78 D47 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:qmsrps:202505 |
| By: | Kumar, Ujjwal; Roy, Souvik |
| Abstract: | We consider a model in which outcomes are bundles of alternatives, each of size at most a fixed (but arbitrary) number. Each agent's type is a strict preference over individual alternatives, which is then lexicographically extended to induce a strict preference over outcomes. A social choice function assigns an outcome to each type profile of agents. A social choice function is said to be locally strategy-proof if no agent can benefit by misreporting her type to another type that the designer considers plausible. The main departure from existing literature lies in the asymmetry of type misreports, which is captured using a directed graph that encodes the designer’s beliefs about feasible misreports. An environment is said to satisfy Directed-Local-Global Equivalence (DLGE) property if every locally strategy-proof social choice function defined on it is, in fact, (globally) strategy-proof. In this paper, we provide a complete characterization of DLGE environments via a property we refer to as Property Strong DL. Additionally, we derive necessary and sufficient conditions for DLGE under several specific notions of locality, such as adjacent, k-push-up, k-push-down, and k_1-push-up and k_2-push-down (some of which were studied in Altuntaș et al. (2023)) both in the setting where outcomes are individual alternatives and where any subset of alternatives may constitute a feasible outcome. Our analysis also extends to single-peaked domains as well. The main result in Cho and Park (2023) and several main results in Altuntaș et al. (2023) follow as corollaries of our framework. |
| Keywords: | Local strategy-proofness; (global) strategy-proofness; directed-local-global-equivalence; lexicographic preference extension function |
| JEL: | D71 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:124676 |
| By: | Javier Cembrano; Andr\'es Moraga; Victor Verdugo |
| Abstract: | We study resource allocation in two-sided markets from a fundamental perspective and introduce a general modeling and algorithmic framework to effectively incorporate the complex and multidimensional aspects of fairness. Our main technical contribution is to show the existence of a range of near-feasible resource allocations parameterized in different model primitives to give flexibility when balancing the different policymaking requirements, allowing policy designers to fix these values according to the specific application. To construct our near-feasible allocations, we start from a fractional resource allocation and perform an iterative rounding procedure to get an integer allocation. We show a simple yet flexible and strong sufficient condition for the target feasibility deviations to guarantee that the rounding procedure succeeds, exhibiting the underlying trade-offs between market capacities, agents' demand, and fairness. To showcase our framework's modeling and algorithmic capabilities, we consider three prominent market design problems: school allocation, stable matching with couples, and political apportionment. In each of them, we obtain strengthened guarantees on the existence of near-feasible allocations capturing the corresponding fairness notions, such as proportionality, envy-freeness, and stability. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.01178 |
| By: | Michiko Ogaku |
| Abstract: | This paper investigates whether an ex-ante welfare-maximising risk allocation rule can be implemented among many participants. Specifically, we investigate the applicability of the price and choose mechanism proposed by Echenique and N\'u\~nez(2025) to risk allocation problems. While their mechanism implements Pareto optimal allocations in finite choice sets, we consider extending it to an infinite choice set of feasible risk-sharing allocations. This paper asks whether an ex-ante welfare-maximising risk allocation rule can indeed be implemented for a large group. Specifically, we study the price and choose (P&C) mechanism of Echenique and N\'u\~nez(2025) in a risk-sharing setting. In P&C, players sequentially set prices for each possible alternative; the last player chooses an alternative, provided that all previous players receive the prices they set. Echenique and N\'u\~nez(2025) show that, for finite choice sets, the mechanism implements any Pareto optimal allocation in the subgame-perfect Nash equilibrium. Our setting differs in one crucial respect: the choice set is infinite. Each alternative is a feasible allocation of total risk, and each player sets a Lipschitz-continuous price function on this infinite set. We show that the P&C mechanism can still be extended to implement the allocation that maximises the sum of players' utilities, even with an infinite choice set. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.04122 |
| By: | Biais, Bruno; Gersbach, Hans; Rochet, Jean-Charles; von Thadden, Ernst-Ludwig; Villeneuve, Stéphane |
| Abstract: | We analyze dynamic capital allocation and risk sharing between a principal and many agents, who privately observe their output. The state variables of the mechanism design problem are aggregate capital and the distribution of continuation utilities across agents. This gives rise to a Bellman equation in an infinite dimensional space, which we solve with mean-field techniques. We fully characterize the optimal mechanism and show that the level of risk agents must be exposed to for incentive reasons is decreasing in their initial outside utility. We extend classical welfare theorems by showing that any incentive- constrained optimal allocation can be implemented as an equilibrium allocation, with appropriate money issuance and wealth taxation by the principal. |
| Date: | 2025–05–22 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130553 |
| By: | Philip Beran; Christian Furtwängler; Christopher Jahns; Arne Vogler; Christoph Weber (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen) |
| Abstract: | The profitable exploitation of asset portfolios in the European electricity markets has become more challenging in recent years. This is particularly true for combined heat and power (CHP) generation units that are often facing must-run conditions due to heat demands that need to be satisfied. Including the use of flexibility from storage technologies is key to optimize power plant operation margins and therefore it is crucial to adequately account for price uncertainties in the European market design. Stochastic optimization is thus frequently suggested for an optimal bidding and dispatch of said portfolios. In our contribution, we develop a novel chain of one weekly and five daily two-stage stochastic optimizations with recourse to identify the optimal bidding strategies for CHP portfolios to all relevant markets, including the key European electricity market segments, i.e., hourly day-ahead and quarterhourly intraday opening auctions, and control reserve markets, i.e., primary (FCR), secondary (aFRR) and tertiary (mFRR) reserve auctions. We test our model by means of a rolling-horizon approach on historical data and contrast our model’s performance with regards to objective function improvement and computation time for various numbers of scenarios. We furthermore benchmark the model against its deterministic representation with and without perfect information. We find that stochastic optimization may substantially increase portfolio returns, without impairing the usability of stochastic optimization frameworks in real-world contexts, a result that is stable with and without the consideration of heat provision and with different market designs regarding FCR provision periods. |
| Keywords: | or in energy, stochastic programming, auctions/bidding, combined heat and power |
| JEL: | C32 C61 L94 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:dui:wpaper:2502 |
| By: | Alper Arslan (Department of Economics at the University of Texas at San Antonio); Robert Clark (Queen's University); Qidi Hu (Queen's University) |
| Abstract: | This study investigates whether corruption differentially affects contracting through auctions and negotiations. Using data on Chinese land-market transactions, where corruption is known to be present, we first show that, on average, it exerts similar effects on transactions carried out via auctions and negotiation. However, this finding masks important heterogeneity – auctionsfeaturing healthy competition are less affected by corruption, and significantly less so than negotiation. We then develop a simple model of bidding under the possibility of corruption that rationalizes our findings. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:qed:wpaper:1524 |
| By: | Enache, Andreea; Rhodes, Andrew |
| Abstract: | We consider a setting in which a platform matches buyers and sellers, who then wish to transact with each other multiple times. The platform charges fees for hosting transactions, but also offers convenience benefits. We consider two scenarios. In one scenario, all transactions must occur on the platform; in the other scenario, buyers and sellers can disintermediate the platform after the first transaction, and do subsequent transactions offline. We find that the platform reacts to disintermediation by using a “front-loaded” pricing scheme, whereby it charges more for earlier transactions. We also show that sometimes the platform is better off when disintermediation is possible—because it can use disintermediation to screen users’ private information about their convenience benefits. Buyers are not necessarily better off when they can disintermediate, due to the way in which the platform adjusts its fees. |
| Keywords: | Platforms; disintermediation; convenience benefits; repeat transactions |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130557 |