Economic Design
http://lists.repec.org/mailman/listinfo/nep-des
Economic Design
2024-07-22
The Limits of Interval-Regulated Price Discrimination
https://d.repec.org/n?u=RePEc:arx:papers:2406.06023&r=&r=des
In this paper, we study third-degree price discrimination in a model first presented in Bergemann, Brooks, and Morris [2015]. Since such price discrimination might create market segments with vastly different posted prices, we consider regulating these prices, specifically, via restricting them to lie within an interval. Given a price interval, we consider segmentations of the market where a seller, who is oblivious to the existence of such regulation, still posts prices within the price interval. We show the following surprising result: For any market and price interval where such segmentation is feasible, there is always a different segmentation that optimally transfers all excess surplus to the consumers. In addition, we characterize the entire space of buyer and seller surplus that are achievable by such segmentation, including maximizing seller surplus, and simultaneously minimizing buyer and seller surplus.
Kamesh Munagala
Yiheng Shen
Renzhe Xu
2024-06
Counting Steps for Re-Stabilization in a Labor Matching Market
https://d.repec.org/n?u=RePEc:aoz:wpaper:328&r=&r=des
We study a one-to-one labor matching market. If a worker considers resigning from her current job to obtain a better one, how long does it take for this worker to actually get it? We present an algorithm that models this situation as a re-stabilization process involving a vacancy chain. Each step of the algorithm is a link of such a chain. We show that the length of this vacancy chain, which can be interpreted as the time the worker has to wait for her new job, is intimately connected with the lattice structure of the set of stable matchings of the market. Namely, this length can be computed by considering the cardinalities of cycles in preferences derived from the initial and final stable matchings involved.
Agustín Bonifacio
Nadia Guiñazú
Noelia Juarez
Pablo Neme
Jorge Oviedo
Labor markets, stable matchings, re-stabilizing process, cycles in preferences.
2024-07
Coarse Information Design
https://d.repec.org/n?u=RePEc:ajk:ajkdps:314&r=&r=des
We study an information design problem with continuous state and discrete signal space. Under convex value functions, the optimal information structure is interval-partitional and exhibits a dual expectations property: each induced signal is the conditional mean (taken under the prior density) of each interval; and each interval cutoff is the conditional mean (taken under the value function curvature) of the interval formed by neighboring signals. This property enables an examination into which part of the state space is more finely partitioned. The analysis can be extended to general value functions and adapted to study coarse mechanism design.
Qianjun Lyu
Wing Suen
Yimeng Zhang
Dual expectations, scrutiny, Coarse mechanism design
2024-06
Mechanism Design by a Politician
https://d.repec.org/n?u=RePEc:arx:papers:2406.08936&r=&r=des
A set of agents has to make a decision about the provision of a public good and its financing. Agents have heterogeneous values for the public good and each agent's value is private information. An agenda-setter has the right to make a proposal about a public-good level and a vector of contributions. For the proposal to be approved, only the favourable votes of a subset of agents are needed. If the proposal is not approved, a type-dependent outside option is implemented. I characterize the optimal public-good provision and the coalition-formation for any outside option in dominant strategies. Optimal public-good provision might be a non-monotonic function of the outside option public-good level. Moreover, the optimal coalition might be a non-convex set of types.
Giovanni Valvassori Bolg\`e
2024-06
Maximum Flow is Fair: A Network Flow Approach to Committee Voting
https://d.repec.org/n?u=RePEc:arx:papers:2406.14907&r=&r=des
In the committee voting setting, a subset of $k$ alternatives is selected based on the preferences of voters. In this paper, our goal is to efficiently compute ex-ante fair probability distributions (or lotteries) over committees. Since it is not known whether a lottery satisfying the desirable fairness property of fractional core is polynomial-time computable, we introduce a new axiom called group resource proportionality (GRP), which strengthens other fairness notions in the literature. We characterize our fairness axiom by a correspondence with max flows on a network formulation of committee voting. Using the connection to flow networks revealed by this characterization, we then introduce voting rules which achieve fairness in conjunction with other desirable properties. The redistributive utilitarian rule satisfies ex-ante efficiency in addition to our fairness axiom. We also give a voting rule which maximizes social welfare subject to fairness by reducing to a minimum-cost maximum-flow problem. Lastly, we show our fairness property can be obtained in tandem with strong ex-post fairness properties -- an approach known as best-of-both-worlds fairness. We strengthen existing best-or-both-worlds fairness results in committee voting and resolve an open question posed by Aziz et al. (2023). These findings follow from an auxiliary result which may prove useful in obtaining best-of-both-worlds type results in future research on committee voting.
Mashbat Suzuki
Jeremy Vollen
2024-06
Matching and fair pricing of socially optimal, stable and financially sustainable ride-sharing in congestible networks
https://d.repec.org/n?u=RePEc:ema:worpap:2024-06&r=&r=des
The paper deals with matching and fair pricing in urban peer-to-peer ride-sharing schemes where the following desirable properties hold: (i) matchings between passengers and drivers are decided by a social planner to minimize total car-kilometers travelled, (ii) matchings are stable, i.e. no pair of passenger and driver can both increase their fuel cost-related surplus from breaking the current partnership, and (iii) the scheme is financially sustainable, i.e. there is no need of subsidy. The case where travel times are affected by matchings, in the light of the reduced number of cars travelling on the network, is unexplored. The paper fills this gap. The matching optimization problem is formulated as linear programming problem with nonlinear equilibrium constraints and node-link network representation. Solution to the approximately equivalent mixed-integer linear programming formulation is obtained by available efficient off-the-shelf solvers. Duality theory is used to specify a stability compliant pricing scheme based on fair surplus division: the surplus gained by each traveler is exactly half way between the minimum and the maximum she can obtain from any stable solution. Computation of prices requires solution of two linear programming problems. The price paid by the passenger is received by the driver. Since surplus of each traveler is nonnegative, subsidies are not needed. A toy network and a small network are used to illustrate the theoretical findings, and to appraise the pricing-induced shares of trip cost that accrue to each traveler.
P.Delle Site
André de Palma
Samarth Ghoslya
Equilibrium, matching, pricing, ride-sharing, stability
2024
Optimal Feedback Dynamics Against Free-Riding in Collective Experimentation
https://d.repec.org/n?u=RePEc:dpr:wpaper:1247&r=&r=des
We consider a dynamic model in which a principal decides what information to release about a product of unknown quality (e.g., a vaccine) to incentivize agents to experiment with the product. Assuming that the agents are long-lived and forward-looking, their incentive to wait and see other agents' experiences poses a significant obstacle to social learning. We show that the optimal feedback mechanism to mitigate information free-riding takes a strikingly simple form: the principal recommends adoption as long as she observes no bad news, but only with some probability; once she does not recommend at some point, she stays silent forever after that. Our analysis suggests the optimality of premature termination, which in turn implies that: (i) false positives (termination in the good state) are more acceptable than false negatives (continuation in the bad state); (ii) overly cautious mechanisms that are biased toward termination can be welfare-enhancing.
Chia-Hui Chen
Hulya Eraslan
Junichiro Ishida
Takuro Yamashita
2024-07
Strategy-proof multinary group identification
https://d.repec.org/n?u=RePEc:ind:igiwpp:2024-006&r=&r=des
This paper explores the incentive properties of Collective Identity Functions (CIFs) in multinary group identification problems. Building on Cho and Saporiti (2020), we show that one-vote rules (Miller (2008), Cho and Ju (2017)) are manipulable. Additionally, we establish the decomposability of strategy-proof CIFs, enhancing our understanding of their structural properties.
Gopakumar Achuthankutty
Strategy-proofness, Multinary group identification
2024-03
Equilibria and Group Welfare in Vote Trading Systems
https://d.repec.org/n?u=RePEc:arx:papers:2406.09536&r=&r=des
We introduce a new framework to study the group dynamics and game-theoretic considerations when voters in a committee are allowed to trade votes. This model represents a significant step forward by considering vote-for-vote trades in a low-information environment where voters do not know the preferences of their trading partners. All voters draw their preference intensities on two issues from a common probability distribution and then consider offering to trade with an anonymous partner. The result is a strategic game between two voters that can be studied analytically. We compute the Nash equilibria for this game and derive several interesting results involving symmetry, group heterogeneity, and more. This framework allows us to determine that trades are typically detrimental to the welfare of the group as a whole, but there are exceptions. We also expand our model to allow all voters to trade votes and derive approximate results for this more general scenario. Finally, we emulate vote trading in real groups by forming simulated committees using real voter preference intensity data and computing the resulting equilibria and associated welfare gains or losses.
Matthew I. Jones
2024-06
Optimal Disclosure Mandate in Supply Chains
https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_560&r=&r=des
We study a model in which a firm can acquire conclusive evidence about its suppliers social and environmental impacts. We identify the disclosure mandate that maximizes market information. A disclosure mandate determines whether (i) the firms investigation effort is observable by the market and (ii) obtained evidence is disclosed to the market. When the supply chain visibility is low, the firm does not know its suppliers impacts. The combination of covert investigation and voluntary disclosure of obtained evidence incentivizes the firm to acquire evidence and constitutes the optimal disclosure mandate. When the supply chain visibility is high, the firm knows its suppliers impacts. Overt investigation and mandatory disclosure of obtained evidence together enable the firm to signal its private knowledge through the chosen investigation effort and maximize market information. The sharp contrast of these two cases highlights the importance of supply chain visibility in determining the optimal mandate.
Tsz-Ning Wong
Lily Ling Yang
Andrey Zhukov
Supply chain transparency, Mandatory disclosure, Voluntary disclosure
2024-06
Information Aggregation with Costly Information Acquisition
https://d.repec.org/n?u=RePEc:arx:papers:2406.07186&r=&r=des
We study information aggregation in a dynamic trading model with partially informed traders. Ostrovsky [2012] showed that 'separable' securities aggregate information in all equilibria, however, separability is not robust to small changes in the traders' private information. To remedy this problem, we enhance the model by allowing traders to acquire signals with cost $\kappa$, in every period. We show that '$\kappa$ separable securities' aggregate information and, as the cost decreases, nearly all securities become $\kappa$ separable, irrespective of the traders' initial private information. Moreover, the switch to $\kappa$ separability happens not gradually but discontinuously, hence even a small decrease in costs can result in a security aggregating information. Finally, even with myopic traders, cheaper information may accelerate or decelerate information aggregation for all but Arrow-Debreu securities.
Spyros Galanis
Sergei Mikhalishchev
2024-06
The Economics of Coal Phaseouts: Auctions as a Novel Policy Instrument for the Energy Transition
https://d.repec.org/n?u=RePEc:arx:papers:2406.14238&r=&r=des
The combustion of coal, the most polluting form of energy, must be significantly curtailed to limit global average temperature increase to well below 2 degrees C. The effectiveness of carbon pricing is frequently undermined by sub-optimally low prices and rigid market structures. Consequently, alternative approaches such as compensation for the early closure of coal-fired power plants are being considered. While bilateral negotiations can lead to excessive compensation due to asymmetric information, a competitive auction can discover the true cost of closure and help allocate funds more efficiently and transparently. Since Germany is the only country till date to have implemented a coal phaseout auction, we use it to analyse the merits and demerits of the policy, drawing comparisons with other countries that have phased out coal through other means. The German experience with coal phaseout auctions illustrates the necessity of considering additionality and interaction with existing climate policies, managing dynamic incentives, and evaluating impacts on security of supply. While theoretically auctions have attractive properties, in practice, their design must address these concerns to unlock the full benefits. Where auctions are not appropriate due to a concentration in coal plant ownership, alternative strategies include enhanced incentives for scrappage and repurposing of coal assets.
Sugandha Srivastav
Michael Zaehringer
2024-06
Sharing the cost of cleaning up non-point source pollution
https://d.repec.org/n?u=RePEc:crb:wpaper:2024-13&r=&r=des
We consider the problem of sharing the cost of cleaning the non-point source pollution of industrial sites among the firms that own these sites. The bilateral liabilities between firms are depicted by an undirected graph. We introduce and characterize axiomatically two allocation rules inspired by the celebrated Polluter pays and Beneficiary pays principles in environmental law. The first one shares evenly the cost of cleaning up a site among the firms that can have caused the corresponding environmental damage. The second one charges to each firm the entire cost of cleaning up its own production site. We also establish connections with cooperative game theory.
Sylvain Béal
David Lowing
Léa Munich
Cooperative game theory; Cost allocation; Pollution; liability
2024-06
From Theory to Practice: Making Carbon Pricing Work
https://d.repec.org/n?u=RePEc:ocp:rpaper:pp-07-24&r=&r=des
Carbon pricing mechanisms are central to mitigating climate change. These mechanisms work by internalizing the costs associated with greenhouse gas emissions, thus encouraging emissions reductions and promoting technological progress in favor of sustainable alternatives. However, the implementation of carbon pricing mechanisms faces numerous complexities and challenges, especially in developing countries, given the potentially regressive impact of carbon pricing on low-income groups, and the general lack of socio- political support. This policy paper offers a comparative review of two market-based carbon pricing strategies—carbon taxes and emissions trading systems (ETS)—to shed light on their effectiveness, implementation, and capacity to generate revenue. It also argues that carbon pricing should be integrated into a comprehensive policy framework that addresses both national priorities and international equity considerations, in order to effectively address global climate change. The effectiveness of these policies depends largely on their design and adaptation to the specific political and economic contexts in which they are implemented.
Rim Berahab
2024-05
Loss-Versus-Fair: Efficiency of Dutch Auctions on Blockchains
https://d.repec.org/n?u=RePEc:arx:papers:2406.00113&r=&r=des
Milionis et al.(2023) studied the rate at which automated market makers leak value to arbitrageurs when block times are discrete and follow a Poisson process, and where the risky asset price follows a geometric Brownian motion. We extend their model to analyze another popular mechanism in decentralized finance for onchain trading: Dutch auctions. We compute the expected losses that a seller incurs to arbitrageurs and expected time-to-fill for Dutch auctions as a function of starting price, volatility, decay rate, and average interblock time. We also extend the analysis to gradual Dutch auctions, a variation on Dutch auctions for selling tokens over time at a continuous rate. We use these models to explore the tradeoff between speed of execution and quality of execution, which could help inform practitioners in setting parameters for starting price and decay rate on Dutch auctions, or help platform designers determine performance parameters like block times.
Ciamac C. Moallemi
Dan Robinson
2024-05
Endogenous Asymmetry in Sequential Auctions
https://d.repec.org/n?u=RePEc:spa:wpaper:2024wpecon21&r=&r=des
This paper proposes an innovative methodology for sequential auctions of homogeneous goods that creates asymmetry among participants, thereby achieving higher revenue for the auctioneer. The asymmetry arises endogenously from a competitive advantage in the second auction granted to the winner of the first auction. The analysis shows that the auctioneer's expected revenue in this scenario is higher than in auctions without a competitive advantage and approaches the expected revenue of an optimal reserve price auction. After analyzing the benefits and drawbacks of the competitive advantage mechanism, this paper concludes that it represents a more effective auction design than conventional approaches.
Mauricio Bugarin
Wilfredo Leiva Maldonado
Sequential auctions; Endogenous asymmetry; Strategic advantage
2024-07-01