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on Economic Design |
| By: | Tilman Börgers (University of Michigan); Jiangtao Li (Singapore Management University); Kexin Wang (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 Designl; Undominated Mechanisms; Maxmin Approrach; Regret Minimization; Second-pric |
| Date: | 2025–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:021402 |
| By: | Shurojit Chatterji (Singapore Management University); Takashi Kunimoto (Singapore Management University); Paul Ramos (Singapore Management University) |
| Abstract: | A social choice function (SCF) is said to be Nash implementable (in pure strategies) if there exists a mechanism in which every pure-strategy Nash equilibrium induces outcomes specified by the SCF. The main objective of this paper is to assess the impact of considering mixed-strategy equilibria in Nash implementation. We define compelling Nash implementation as a case where the implementing mechanism possesses a pure-strategy equilibrium that strictly Pareto dominates any undesired mixed-strategy equilibrium. We show that if the finite environment and the SCF to be implemented jointly satisfy what we call Condition COM, then we can construct a finite mechanism which compellingly implements the SCF. We also identify a class of voting environments that satisfies Condition COM, extend Condition COM to accommodate social choice correspondences, and explore a preliminary stability-based justification for the implementing mechanism. Our mechanism has several desirable features: transfers are completely dispensable; only finite mechanisms are considered; integer games are not invoked; and agents’ attitudes toward risk do not affect implementation. |
| Keywords: | Compelling Implementation; Mechanisms; Mixed Strategies; Nash Equilibrium |
| JEL: | C72 D78 D82 |
| Date: | 2025–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:021401 |
| By: | Omer Faruk Sahin (Stanford University); Duygu Sili (University of Messina); M. Utku Ünver (Boston College); Özgür Yilmaz (Koç University) |
| Abstract: | In the past two decades, the design and implementation of living donor kidney exchange clearinghouses have been a major success story in market design. Instead of batching and optimizing exchanges over a fixed pool of incompatible patient-donor pairs, the busiest programs now operate dynamically, matching pairs as they arrive. This feature has also sparked interest in dynamic matching mechanisms. Yet for general matching problems with high-dimensional state spaces, a full characterization of optimal dynamic mechanisms remains elusive, and only approximate solutions are known. We develop a new methodology to characterize and compute dynamically optimal mechanisms for bilateral matching over arbitrary state spaces, provided that compatibility between agent types follows a linear spatial structure. This technique applies to optimal dynamic kidney exchange and extends to other spatial matching problems. Our approach leverages second-order properties of the value function, extending recent advances in Markov Decision Processes and queueing systems, which traditionally focus only on substitutable components. |
| Keywords: | Dynamic matching, kidney exchange, dynamic exchange, spatial economics, Poisson arrival, dynamic optimization, Markov Decision Process, discrete convex analysis, D- multimodularity, superconcavity, componentwise concavity, submodularity, supermodularity. |
| JEL: | C78 D47 C70 D78 C61 |
| Date: | 2025–06–15 |
| URL: | https://d.repec.org/n?u=RePEc:boc:bocoec:1090 |
| By: | Gian Luigi Albano (Consip S.p.A. and LUISS Guido Carli University); Walter Ferrarese (Universitat de les Illes Balears); Roberto Pezzuto (DEF, University of Rome "Tor Vergata") |
| Abstract: | We show that in a single-lot low-price auction, a merger can be simultaneously profitable and increase the buyer’s surplus, even in the absence of cost synergies. Thus the buyer’s purchasing price may go down even when a lower number of bids is submitted. In determining our main result we highlight the role of firms’ cost exhibiting a discontinuity due to short-term capacity constraints or non-linear contractual agreements. The paper contributes to a new strand of literature showing that in bidding markets the lack of merger-induced synergies does not necessarily imply worse outcomes for the buyer. Hence the Authorities need not worry about resorting to possibly convoluted assessment of the attainability of this kind of efficiencies. |
| Keywords: | Horizontal Mergers, Buyer Surplus, Cost Discontinuity |
| JEL: | L11 L23 L51 |
| Date: | 2025–07–09 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:607 |
| By: | Eickhoff, Katharina; Neuwohner, Meike; Peis, Britta; Rieken, Niklas; Vargas Koch, Laura; Végh, Lázló A. |
| Abstract: | We consider dynamic auctions for finding Walrasian equilibria in markets with indivisible items and strong gross substitutes valuation functions. Each price adjustment step in these auction algorithms requires finding an inclusion-wise minimal maximally overdemanded set or an inclusion-wise minimal maximally underdemanded set at the current prices. Both can be formulated as a submodular function minimization problem. We observe that minimizing this submodular function corresponds to a polymatroid sum problem, and using this viewpoint, we give a fast and simple push-relabel algorithm for finding the required sets. This improves on the previously best running time of Murota, Shioura and Yang (ISAAC 2013). Our algorithm is an adaptation of the push-relabel framework by Frank and Miklós (JJIAM 2012) to the particular setting. We obtain a further improvement for the special case of unit-supplies. We further show the following monotonicity properties of Walrasian prices: both the minimal and maximal Walrasian prices can only increase if supply of goods decreases, or if the demand of buyers increases. This is derived from a fine-grained analysis of market prices. We call packing prices a price vector such that there is a feasible allocation where each buyer obtains a utility maximizing set. Conversely, by covering prices we mean a price vector such that there exists a collection of utility maximizing sets of the buyers that include all available goods. We show that for strong gross substitutes valuations, the component-wise minimal packing prices coincide with the minimal Walrasian prices and the component-wise maximal covering prices coincide with the maximal Walrasian prices. These properties in turn lead to the price monotonicity results. |
| Keywords: | dynamic auctions; walrasian prices; strong gross substitutes; polymatroid sum; push-relabel; monotonicity |
| JEL: | J1 |
| Date: | 2025–04–12 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:127980 |
| By: | Willy Lefez (Humboldt Universität) |
| Abstract: | We study price discrimination by a monopolistic seller that endogenously produces a market segmentation at a cost, and question the efficiency of the production of market segmentations led by private incentives. We show that the efficient market segmentation gives all the gains in total surplus to the buyer, and the seller profit stays at the uniform profit level. Our result suggests that the private production of information by sellers to price discriminate is significantly inefficient. |
| Keywords: | Price Discrimination, Cost of Information, Production of Information.; cost of information; production of information; |
| JEL: | D42 D83 L12 |
| Date: | 2025–07–02 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:535 |
| By: | Kevin J. Mumford; Richard W. Patterson; Anthony Yim |
| Abstract: | What happens when college students cannot enroll in the courses they want? Using conditional random assignment to oversubscribed courses at a large public university, we find that a course shutout reduces the probability that a student ever takes any course in the corresponding subject by 30%. Course shutouts are particularly disruptive for female students, reducing women's cumulative GPAs, probability of majoring in STEM, on-time graduation, and early-career earnings. In contrast, shutouts do not appear to be disruptive to male students' long-run outcomes, with one exception—shutouts significantly increase the probability that men choose a major from the business school. |
| JEL: | I23 J16 J24 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33800 |
| By: | Kovač, Dejan; Neilson, Christopher A.; Raith, Johanna |
| Abstract: | How do beliefs on admission probability influence application choices? In this study, we empirically investigate whether and how admission probability is reflected in application choices in a centralized admission system. We exploit a novel setting of a dynamic deferred acceptance mechanism as employed in Croatia with hourly information updates and simultaneous application choices. This setting allows us to explore within-applicant strategic adjustments as a reaction to changing signals on admission probability. We show in an RDD analysis that applicants react to negative signals on admission probability with an increased propensity to adjust their application choices by 11-23%. Additionally, we show how application strategies evolve over time, while applicants learn about their admission probability. The group most-at-risk to remain unmatched improves their application choices by applying to programs with a higher admission probability towards the application deadline. Yet, we also identify a popular and potentially harmful strategy of applying to safer programs before applying to more risky "reach" programs. About a quarter of applicants have the potential to improve their application choices by resorting their application choices. |
| Keywords: | belief updating, college admission, deferred acceptance, higher education, preference misrepresentation |
| JEL: | D82 I21 I23 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwhdps:319912 |
| By: | Henrique Castro-Pires; Deniz Kattwinkel; Jan Knoepfle |
| Abstract: | We characterize the set of incentive compatible mechanisms in problems with hidden productivity types and flexible hidden actions. We demonstrate the tractability of the characterization with applications. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.12979 |
| By: | Carmelo Rodríguez à lvarez (Instituto Complutense de Análisis Económico (ICAE), Universidad Complutense de Madrid (Spain).) |
| Abstract: | This paper contributes to the housing bubble literature by analysing rental and sales price dynamics in Spain’s two largest urban centres—Madrid and Barcelona—between May 2007 and December 2024. Using monthly data from Idealista.com, Spain’s leading real estate platform, we detect the presence of price bubbles in both markets, assess their key determinants, and explore contagion effects across cities and segments. Our results show that while only a few bubbles emerged, they were of substantial duration. We also find evidence of contagion, with rental bubbles consistently preceding sales bubbles, underscoring the pivotal role of rental markets in driving price surges. Among the key determinants, higher hotel stays are associated with a reduced probability of housing bubbles, suggesting that more hotel-based tourists may help stabilise real estate markets in both urban centres. Rising interest rates and the availability of housing certificates are also linked to lower bubble risk. Conversely, increasing resident numbers significantly raise the likelihood of positive bubbles, whereas higher unemployment dampens it. These findings offer critical insights for housing policy in major urban areas. |
| Keywords: | Bubbles; Local Projections; Contagion; Real Estate Markets. |
| JEL: | R31 G12 E44 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ucm:doicae:2504 |
| By: | Beißner, Patrick (Center for Mathematical Economics, Bielefeld University); Riedel, Frank (Center for Mathematical Economics, Bielefeld University) |
| Abstract: | In diffusion models, few suitably chosen financial securities allow to complete the market. As a consequence, the efficient allocations of static Arrow-Debreu equilibria can be attained in Radner equilibria by dynamic trading. We show that this celebrated result generically fails if there is Knightian uncertainty about volatility. A Radner equilibrium with the same efficient allocation as in an Arrow-Debreu equilibrium exists if and only if the discounted net trades of the equilibrium allocation display no ambiguity in the mean. This property is violated generically in endowments, and thus Arrow-Debreu equilibrium allocations are generically unattainable by dynamically trading few long-lived assets. |
| Date: | 2025–06–16 |
| URL: | https://d.repec.org/n?u=RePEc:bie:wpaper:707 |
| By: | Pollitt, M. G.; Terribile, M. M. |
| Abstract: | The configuration of bidding zones has become a central issue in the ongoing debate on electricity market design. This paper critically analyzes the effectiveness and limitations of zonal pricing through a comparative analysis of Italy, Norway, and Sweden—three countries with mature zonal systems—and markets such as Texas and California, which initially adopted zonal pricing but later transitioned to nodal regimes. We investigate the institutional, technical and socio-economic factors shaping these di-vergent trajectories, highlighting how national governance structures and energy system characteristics influence market performance. In zonal market architectures, locational pricing is systematically applied on the supply side, while on the demand side, zonal pricing is optional and depends on the specific market design. By examining zone defi-nition processes, price convergence, redispatch volumes and market liquidity, we iden-tify both the commonalities and context-specific dynamics that underpin zonal market outcomes. While zonal pricing can enhance locational transparency and support efficient investment, its long-term effectiveness relies on regular, data-driven revisions of zone boundaries that reflect evolving grid conditions. Although often conceptualized as an intermediate step toward nodal pricing, zonal pricing in practice tends to exhibit con-siderable inertia. The evolution of zones is typically gradual, with reconfigurations oc-curring infrequently and sometimes even resulting in a reduction in the number of zones. The findings support a flexible and adaptive approach to bidding zone design, guided by empirical evidence and aligned with the broader objectives of decarbonization, market integration, and system reliability. |
| Keywords: | Zonal Pricing, Electricity Markets, Congestion Management, Bidding Zones |
| JEL: | L94 |
| Date: | 2025–06–28 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2541 |