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on Economic Design |
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Issue of 2017‒08‒20
six papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Benjamin Brooks (Dept. of Economics, University of Chicago); Stephen Morris (Dept. of Economics, Princeton University) |
| Abstract: | We characterize revenue maximizing auctions when the bidders are intermediaries who wish to resell the good. The bidders have differential information about their common resale opportunities: each bidder privately observes an independent draw of a resale opportunity, and the highest signal is a sufficient statistic for the value of winning the good. If the good must be sold, then the optimal mechanism is simply a posted price at which all bidders are willing to purchase the good, and all bidders are equally likely to be allocated the good, irrespective of their signals. If the seller can keep the good, then under the optimal mechanism, all bidders make the same expected payment and have the same expected probability of receiving the good, independent of the signal. Conditional on the good being sold, the allocation discriminates in favor of bidders with lower signals. In some cases, the optimal mechanism again reduces to a posted price. The model provides a foundation for posted prices in multi-agent screening problems. |
| Keywords: | Optimal auction, Intermediaries, Posted price, Guaranteed demand auction, Common values, Revenue maximization, Revenue equivalence, First-price auction, Second-price auction, Resale, Maximum value game, Descending auction, Local incentive constraints, Global incentive constraints |
| JEL: | C72 D44 D82 D83 |
| Date: | 2016–12 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2064r&r=des |
| By: | Ferrara, Gerardo (Bank of England); Li, Xin (University of Westminster) |
| Abstract: | We analyze the role of auctions in managing the default of a clearing member in a generic central counterparty (CCP). We first consider three established alternative sealed bid auction formats in which clearing members simultaneously submit bids for a defaulting clearing member’s portfolio: first price without penalty, first price with penalty, and first price with budget constraints. Under our assumptions regarding bidders’ behaviour, although the revenue of the portfolio by the CCP might be the same for these auction formats mentioned above, there could be significant differences in the externalities arising from each of them. Additionally, this paper considers how mechanisms to incentivize competitive bidding could, in some circumstances, have adverse implications for financial stability by inefficiently distributing losses to surviving clearing members. In response to these potential adverse implications, we propose a fourth auction type — second price with loss sharing — which takes into account a bidder’s consideration that may bear part of the CCP’s losses. |
| Keywords: | Auction; default management; central counterparty |
| JEL: | D44 G18 |
| Date: | 2017–08–14 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0669&r=des |
| By: | Nosal, K.; |
| Abstract: | Many health insurance plans in the U.S. restrict enrollees to choose from a set of providers the insurer has contracted with. These provider networks are formed via bilateral bargaining between insurers and providers. Provider networks are an important tool for product differentiation and cost containment for insurers and also put real restrictions on consumers’ choice of providers. In this paper, I analyze matching between insurers offering Medicare Advantage Plans and physicians, using a unique data set consisting of all insurer-physician links in several counties. I estimate parameters of a two-sided, many-to-many matching model which describes formation of provider networks, using the Maximum Score estimator of Fox (2010). This method uses implications of a pairwise stability condition to estimate a joint surplus function which depends on insurer-physician links. The surplus function accounts for the role of physician and insurer characteristics in determining their match values, and also for interactions between physicians linked to the same insurer, whose services may be complements or substitutes. The results indicate that insurers prefer on the margin to link with physicians who increase the specialty concentration of their network and who are located near other physicians in the network. Physicians are negatively affected by having a broader referral network,as defined by having a larger set of physicians with whom they have insurer links in common. Finally, compared with regional insurers, nationally active insurers benefit more from matching with physicians with U.S. medical degree. Preliminary counterfactual analyses suggest that insurers and physicians would be collectively better off if all physicians were matched to all insurers– that is, if selective contracting were eliminated entirely. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:yor:hectdg:17/19&r=des |
| By: | Breitmoser, Yves; Valasek, Justin |
| Abstract: | Existing theoretical and experimental studies have established that unanimity is a poor decision rule for promoting information aggregation. Despite this, unanimity is frequently used in committees making decisions on behalf of society. This paper shows that when committee members are exposed to "idiosyncratic" payoffs that condition on their individual vote, unanimity can facilitate truthful communication and optimal information aggregation. Theoretically, we show that since agents" votes are not always pivotal, majority rule suffers from a free-rider problem. Unanimity mitigates free-riding since responsibility for the committee's decision is equally distributed across all agents. We test our predictions in a controlled laboratory experiment. As predicted, if unanimity is required, subjects are more truthful, respond more to others' messages, and are ultimately more likely to make the optimal decision. Idiosyncratic payoffs such as a moral bias thus present a rationale for the widespread use of unanimous voting. |
| Keywords: | committees,incomplete information,decision rules,cheap talk,information aggregation,laboratory experiment |
| JEL: | D71 D72 C90 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2017308&r=des |
| By: | Sanchez Villalba, Miguel; Martinez Gorricho, Silvia |
| Abstract: | We propose a new, voluntary mechanism (the "hybrid lottery") as a means for financing the provision of public goods. We find that, under some conditions, the mechanism can mitigate the free-riding problem and that, for each player, the (weakly) dominant strategy is the one that -in equilibrium- implements the first best. We also find that the mechanism is quite robust to modifications of the basic model, including heterogeneity in incomes and preferences, different utility functions and incomplete information. Finally, the mechanism is "self-financed"(i.e., it never runs out of money, neither on- nor off-equilibrium path) and -because of the use of dominant strategies- it is very easy to solve by players. Thus, the mechanism is simple to implement in the real world by charities and other organisations that rely on voluntary contributions. |
| Keywords: | Public Goods; Voluntary Contribution Mechanism; Subsidy Schemes; Laboratory Experiments |
| JEL: | C72 C92 H41 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80823&r=des |
| By: | Julio Elias; Nicola Lacetera; Mario Macis |
| Abstract: | Understanding the influence of moral repugnance on social decisions is challenging, particularly because in several cases not all of the relevant policy options can be observed. In a series of recent studies, we designed survey experiments to identify individual preferences in morally controversial transactions, with focus on the provision of payments to kidney donors in the United States (Elias, Lacetera and Macis 2015a-b, 2016a). We found that providing information on how a price mechanism can help alleviate the organ shortage significantly reduces opposition toward payments for organs. Moreover, we quantified the trade-off that people make between the repugnance and the efficiency of alternative kidney procurement systems. In Elias, Lacetera, Macis and Salardi (2017), finally, we analyzed how the regulation of controversial activities is related to economic development. This paper summarizes these findings and analyzes their main implications for public policy and market design. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:cem:doctra:614&r=des |