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on Economic Design |
| By: | Biais, Bruno (HEC Paris); Gersbach, Hans (ETH Zurich); Rochet, Jean-Charles (University of Toulouse Capitole); von Thadden, Ernst-Ludwig (Universitaet Mannheim); Villeneuve, Stéphane (University of Toulouse 1) |
| Abstract: | This paper analyzes 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 reservation utility. We extend classical welfare theorems by showing that any incentive-constrained optimal allocation can be implemented as an equilibrium allocation, with appropriate transfers and wealth taxation by the principal. |
| Keywords: | Dynamic contract theory; mechanism design; large economies; allocative efficiency; incentive-compatibility; mean-field games; implementation |
| JEL: | C61 D82 D86 D92 E22 |
| Date: | 2024–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:ebg:heccah:1516 |
| By: | Boon-Falleur, Melusine; Huillery, Elise; Chevallier, Coralie |
| Abstract: | Understanding socioeconomic differences in patience is crucial, because time preferences influence various life outcomes, including education and earnings. Previous research consistently shows that people from lower socioeconomic backgrounds (SES) display less patient behaviors, and are more likely to prioritize immediate over delayed rewards. However, most studies rely on laboratory tasks or monetary trade-offs to measure patience, which limits real-world generalisability. This study investigates SES-related differences in waiting behaviour in the context of French higher education admissions. To do so, we leveraged a unique national database that recorded the admission behaviour of every high schooler in France over a period of three years. During the admissions process, students faced a trade-off: they could either accept an immediate offer from a university or wait in the hope of receiving a preferred offer later. Results collected among 274, 316 students reveal that low-SES students were significantly less likely to wait for preferred offers, even when controlling for academic performance, aspirations, and costs such as relocation. This led low-SES students to ultimately enroll in programmes they liked less and that were less prestigious. These results highlight how admission algorithms rewarding patience may inadvertently exacerbate educational inequalities. Such systems, while efficient, can end up favouring students who wait more. This research contributes to current discussions on algorithmic fairness by illustrating that seemingly neutral algorithms can in fact deepen social inequalities if their design rewards patience. It also provides a real life example of socioeconomic differences in patience that are not related to budget constraints. |
| Date: | 2024–12–13 |
| URL: | https://d.repec.org/n?u=RePEc:osf:osfxxx:f7w3v |
| By: | J. Atsu Amegashie |
| Abstract: | I study a model of procurement with moral hazard and adverse selection. The procurer is either corrupt or honest and can choose between sole-sourcing and competitive tender. I compare two procurement regulations: no sole-sourcing is allowed (rigid regulation) and sole-sourcing is allowed in an emergency (flexible regulation). Sole-sourcing in an emergency is efficient. Whether there is an emergency that justifies sole-sourcing is the procurer’s private information. A regulator may fire the procurer depending on his belief that the procurer is corrupt. I find the counterintuitive result that if the gain to corruption is big, a flexible procurement regulation may be better than a rigid procurement regulation. If the gain to corruption is sufficiently small, the flexible regulation may be worse or better than the rigid regulation. Interestingly, although the inefficient choice of sole-sourcing is not always penalized, there exists a perfect Bayesian Nash equilibrium in which a corrupt procurer could be given discretion and incentivized to use sole-sourcing efficiently but without an explicit monetary incentive contract. In this case, the flexible regulation is better than the rigid regulation. The results are driven by three sources of inefficiency that are discussed in the paper. |
| Keywords: | competitive tender, procurement, private information, sole sourcing |
| JEL: | D73 D78 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11489 |
| By: | Lingbo Huang; Jun Zhang |
| Abstract: | Lotteries are commonly employed in school choice to fairly resolve priority ties; however, current practices leave students uninformed about their lottery outcomes when submitting preferences. This paper advocates for revealing lottery results prior to preference submission. When preference lists are constrained in length, revealing lotteries can reduce uncertainties and enable informed decision-making regarding the selection of schools to rank. Through three stylized models, we demonstrate the benefits of lottery revelation in resolving conflicting preferences, equalizing opportunities among students with varying outside options, and alleviating the neighborhood school bias. Our findings are further supported by a laboratory experiment. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.04243 |
| By: | De Groote, Olivier (Toulouse School of Economics); Rho, Minyoung |
| Abstract: | We use data from a platform that centralizes a day care matching process. We estimate parents' preferences and nursery priorities by analyzing parents' rank-ordered lists and nurseries' acceptance decisions. We account for strategic behavior by using a novel estimation approach inspired by the dynamic discrete choice framework. We use the estimates to evaluate centralized matching policies tailored to the day care setting. We compare mechanisms and assess the effects of subsidies, increased capacity, and affirmative action. We find that affirmative action policies are crucial for boosting the participation of disadvantaged children, though they increase segregation due to location-based preferences. |
| Keywords: | day care, affirmative action, segregation, centralized matching markets, CCP estimation |
| JEL: | C61 D82 I24 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17547 |
| By: | Hao Chung; Ke Wu; Elaine Shi |
| Abstract: | Today, many auctions are carried out with the help of intermediary platforms like Google and eBay. We refer to such auctions as platform-assisted auctions.Traditionally, the auction theory literature mainly focuses on designing auctions that incentivize the buyers to bid truthfully, assuming that the platform always faithfully implements the auction. In practice, however, the platforms have been found to manipulate the auctions to earn more profit, resulting in high-profile anti-trust lawsuits. We propose a new model for studying platform-assisted auctions in the permissionless setting. We explore whether it is possible to design a dream auction in thisnew model, such that honest behavior is the utility-maximizing strategy for each individual buyer, the platform, the seller, as well as platform-seller or platform-buyer coalitions.Through a collection of feasibility and infeasibility results, we carefully characterize the mathematical landscape of platform-assisted auctions. We show how cryptography can lend to the design of an efficient platform-assisted auction with dream properties. Although a line of works have also used MPC or the blockchain to remove the reliance on a trusted auctioneer, our work is distinct in nature in several dimensions.First, we initiate a systematic exploration of the game theoretic implications when the service providers are strategic and can collude with sellers or buyers. Second, we observe that the full simulation paradigm is too stringent and leads to high asymptotical costs. Specifically, because every player has a different private outcomein an auction protocol, running any generic MPC protocol among the players would incur at least $n^2$ total cost. We propose a new notion of simulation calledutility-dominated emulation.Under this new notion, we showhow to design efficient auction protocols with quasilinear efficiency. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.03141 |
| By: | Lingbo Huang; Jun Zhang |
| Abstract: | This paper introduces a novel school choice system by incorporating school bundles into the standard framework. Schools are grouped into hierarchical bundles and offered to students as options for preference reports. By listing a bundle, a student seeks admission to any school within the bundle without ranking them. This approach addresses students' difficulty in forming precise preference rankings and expands the number of schools students can report on constrained preference lists, potentially enhancing their match likelihood and welfare. We develop a modified deferred acceptance mechanism that maintains stability while accommodating bundle reports. Laboratory experiments validate our theoretical findings, showing that well-designed bundles aligned with student preferences improve welfare and matching rates without compromising fairness. Practical applications are discussed. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.04241 |
| By: | De, Parikshit; Sharma, Aditi |
| Abstract: | Restricting domain had always been an approach to find out strategy proof social choice function in a voting setup where the society would choose one alternative from the individual preferences. By restricting the domain to a single peaked domain, Moulin (1980) found strategy-proof non-dictatorial social choice functions however, Sato (2010) shows that there does not exist any strategy-proof non-dictatorial choice function on a circular domain. Further restricting the circular domain to a clockwise circular domain, here we attempt to find all non-dictatorial social choice functions that are strategy proof on a clockwise circular domain. Many well-known social choice functions like majority rule, plurality rule, Instant runoff, Condorcet winner turns out to be manipulable whereas we find Borda count rule is strategy proof on a such domain for any number of agents and alternatives. We have defined two new SCF pairwise universal winner (PUW) rule and pairwise winner using plurality (PWP) rule which shows interesting properties. Both PUW and PWP are based on pairwise competition between alternatives, but the way a pairwise winner is decided is quite different. We found for two agents, PUW is strategy proof on clockwise circular domain. And PWP satisfies the monotone property on the clockwise circular domain for any number of agents and alternatives. |
| Keywords: | Social Choice Theory, Strategy-proof, Dictatorial rule, Borda count rule, Majority rule, Clockwise-circular domain, Plurality rule |
| JEL: | D71 |
| Date: | 2024–11–29 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122827 |
| By: | Eric Gao |
| Abstract: | Serial dictatorship is efficient for any given one-sided matching problem, but may not be if there are multiple markets under consideration. One environment where this phenomenon is welfare-relevant is in course and dorm allocation at universities, where serial dictatorship is often used interdependently in each market. This paper introduces and considers paired serial dictatorship, an adaptation of serial dictatorship for problems where two goods are allocated simultaneously. Paired serial dictatorship allows students to first report relative preferences between courses and dorms, which then influence their priority in either market. I find that paired serial dictatorship induces screening along relative preferences and is generally welfare-improving compared to running random serial dictatorship independently for courses and dorms. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.02686 |