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on Economic Design |
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Issue of 2020‒03‒02
thirteen papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Marleen Marra (Département d'économie) |
| Abstract: | This paper presents, solves, and estimates the first structural auction model with seller selection. This allows me to quantify network effects arising from endogenous bidder and seller entry into auction platforms, facilitating the estimation of theoretically ambiguous fee impacts by tracing them through the game. Relevant model primitives are identified from variation in second-highest bids and reserve prices. My estimator builds off the discrete choice literature to address the double nested fixed point characterization of the entry equilibrium. Using new wine auction data, I estimate that this platform’s revenues increase up to 60% when introducing a bidder discount and simultaneously increasing seller fees. More bidders enter when the platform is populated with lower-reserve setting sellers, driving up prices. Moreover, I show that meaningful antitrust damages can be estimated in a platform setting despite this two-sidedness. |
| Keywords: | Auctions with entry; Two-sided markets; Nonparametric identification; Estimation; Nested fixed point |
| JEL: | D44 C52 C57 L81 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:spo:wpmain:info:hdl:2441/5kht5rc22p99sq5tol4efe4ssb&r=all |
| By: | Sander Onderstal (University of Amsterdam); Yang Yang (Sun Yat-Sen University) |
| Abstract: | In procurement auctions, bidders are usually better informed about technical, financial, or legal aspects of the goods and services procured. Therefore, the buyer may include a dialogue in the procurement procedure which enables the suppliers to reveal information that will help the buyer to better specify the terms of the contract. This paper addresses the question of the value added of letting the sourcing process consist of both an auction and a negotiation stage, theoretically and in a laboratory experiment. Our theoretical results suggest that in a setting where the buyer and the suppliers have aligned interests regarding the terms of the contract, allowing the winning supplier to communicate with the buyer after the auction is beneficial to the buyer compared to no communication and ex-ante communication. In a setting where the buyer and the winning supplier have misaligned interests regarding the terms, the buyer benefits from ex-ante communication relative to no communication and ex-post communication. Our experimental data provide strong evidence for the predictions in the aligned-interest setting. In the misaligned-interest setting, we do not observe significant differences between the three mechanisms. Our experimental findings offer several managerial implications for the appropriate design of sourcing processes. |
| Keywords: | Procurement auctions, bidding, cheap-talk communication, negotiations, game theory, experimental economics |
| JEL: | C92 D44 D82 |
| Date: | 2020–02–22 |
| URL: | http://d.repec.org/n?u=RePEc:tin:wpaper:20200013&r=all |
| By: | Orrenius, Pia M. (Federal Reserve Bank of Dallas); Zavodny, Madeline (University of North Florida) |
| Abstract: | Immigration reform is once again on Washington's policy agenda. Serious attention is being given to policies that would place more emphasis on merit than on family ties, which are favored by much of the current US immigration system. One way to determine merit is a point-based system. This paper argues that auctioning off visas would be preferable to a point-based system. Auctions would promote economic growth, increase government revenue, and lead to a more efficient allocation of visas while reducing discretionary decision making by government officials. This paper outlines several proposals for how to implement visa auctions that could serve as a starting point for designing a better immigration policy. We recommend replacing the current system of employment-based temporary and permanent visas with an employer-centered auction in order to increase the economic gains from immigration. |
| Keywords: | immigration, foreign workers, visa auction |
| JEL: | F22 J61 J15 D44 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izapps:pp151&r=all |
| By: | Benjamin Kang; James Unwin |
| Abstract: | In an auction each party bids a certain amount and the one which bids the highest is the winner. Interestingly, auctions can also be used as models for other real-world systems. In an all pay auction all parties must pay a forfeit for bidding. In the most commonly studied all pay auction, parties forfeit their entire bid, and this has been considered as a model for expenditure on political campaigns. Here we consider a number of alternative forfeits which might be used as models for different real-world competitions, such as preparing bids for defense or infrastructure contracts. |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2002.02599&r=all |
| By: | Dirk Bergemann (Cowles Foundation, Yale University); Francisco Castro (Anderson School of Management, UCLA); Gabriel Weintraub (Graduate School of Business, Stanford University) |
| Abstract: | We compare the revenue of the optimal third-degree price discrimination policy against a uniform pricing policy. A uniform pricing policy offers the same price to all segments of the market. Our main result establishes that for a broad class of third-degree price discrimination problems with concave revenue functions and common support, a uniform price is guaranteed to achieve one-half of the optimal monopoly proï¬ ts. This revenue bound holds for any arbitrary number of segments and prices that the seller would use in case he would engage in third-degree price discrimination. We further establish that these conditions are tight and that a weakening of common support or concavity leads to arbitrarily poor revenue comparisons. |
| Keywords: | First Degree Price Discrimination, Third Degree Price Discrimination, Uniform Price, Approximation, Concave Demand Function, Market Segmentation |
| JEL: | C72 D82 D83 |
| Date: | 2019–12 |
| URL: | http://d.repec.org/n?u=RePEc:cwl:cwldpp:2213r&r=all |
| By: | Bettina Klaus; Panos Protopapas |
| Abstract: | We consider the problem of choosing a set of locations of a public good on the real line R when agents have single-peaked preferences over points. We ordinally extend preferences over compact subsets of R, and extend the results of Ching and Thomson (1996), Vohra (1999), and Klaus (2001) to choice correspondences. We show that eciency and replacement-dominance characterize the class of target point functions (Corollary 2) while eciency and population-monotonicity characterize the class of target set correspondences (Theorem 1). |
| Keywords: | single-peaked preferences; population-monotonicity; replacement-dominance; target point functions, target set correspondences |
| JEL: | C71 D63 D78 H41 |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:20.02&r=all |
| By: | Dirk Engelmann (Humboldt University Berlin); Hans Peter Gruener (University of Mannheim); Timo Hoffmann (University Erlangen-Nuremberg); Alex Possajennikov (University of Nottingham) |
| Abstract: | Under simple majority voting an absolute majority of voters may choose policies that are harmful to minorities. It is the purpose of sub- and super-majority rules to protect legitimate minority interests. We study how voting rules are chosen under the veil of ignorance. In our experiment, individuals choose voting rules for given distributions of gains and losses that can arise from a policy, but before learning their own valuation of the policy. We find that subjects on average adjust the voting rule in line with the skewness of the distribution. As a result, a higher share of the achievable surplus can be extracted with the suggested rules than with exogenously given simple majority voting. The rule choices, however, imperfectly reflect the distributions of benefits and costs, in expectation leading to only 63% of the surplus being extracted. Both under-protection and over-protection of minorities contribute to the loss. Voting insincerely leads to a further surplus loss of 5-15%. We classify subjects according to their rule choices and show that most subjects’ rule choices follow the incentives embedded in the distributions. For a few participants, however, this is not the case, which leads to a large part of the surplus loss. |
| Keywords: | Voting, Experiment |
| Date: | 2020–02 |
| URL: | http://d.repec.org/n?u=RePEc:not:notcdx:2020-02&r=all |
| By: | Bahel, Eric; Gómez-Rúa, María; Vidal-Puga, Juan |
| Abstract: | We study three remarkable cost sharing rules in the context of shortest path problems, where agents have demands that can only be supplied by a source in a network. The demander rule requires each demander to pay the cost of their cheapest connection to the source. The supplier rule charges to each demander the cost of the second-cheapest connection and splits the excess payment equally between her access suppliers. The alexia rule averages out the lexicographic allocations, each of which allows suppliers to extract rent in some pre-specified order. We show that all three rules are anonymous and demand-additive core selections. Moreover, with three or more agents, the demander rule is characterized by core selection and a specific version of cost additivity. Finally, convex combinations of the demander rule and the supplier rule are axiomatized using core selection, a second version of cost additivity and two additional axioms that ensure the fair compensation of intermediaries. |
| Keywords: | Shortest path, cost sharing, core selection, additivity. |
| JEL: | C71 D85 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:98504&r=all |
| By: | Agnes Cseh (Centre for Economic and Regional Studies, Institute of Economics); Yuri Faenza (IEOR, Columbia University, New York, USA); Telikepalli Kavitha (Tata Institute of Fundamental Research, Mumbai, India); Vladlena Powers (IEOR, Columbia University, New York, USA) |
| Abstract: | An instance of the marriage problem is given by a graph G together with, for each vertex of G, a strict preference order over its neighbors. A matching M of Gis popular in the marriage instance if M does not lose a head-to-head election against anymatching where vertices are voters. Every stable matching is a min-size popular matching; another subclass of popular matchings that always exist and can be easily computed is theset of dominant matchings. A popular matching M is dominant if M wins the head-to-headelection against any larger matching. Thus every dominant matching is a max-size popularmatching and it is known that the set of dominant matchings is the linear image of the set ofstable matchings in an auxiliary graph. Results from the literature seem to suggest that stableand dominant matchings behave, from a complexity theory point of view, in a very similarmanner within the class of popular matchings.The goal of this paper is to show that indeed there are differences in the tractability of stableand dominant matchings, and to investigate further their importance for popular matchings.First, we show that it is easy to check if all popular matchings are also stable, however it isco-NP-hard to check if all popular matchings are also dominant. Second, we show how somenew and recent hardness results on popular matching problems can be deduced from the NP-hardnessof certain problems on stable matchings, also studied in this paper, thus showing thatstable matchings can be employed not only to show positive results on popular matching (as isknown), but also most negative ones. Problems for which we show new hardness results includefinding a min-size (resp. max-size) popular matching that is not stable (resp. dominant). Aknown result for which we give a new and simple proof is the NP-hardness of finding a popularmatching when G is non-bipartite. |
| Keywords: | popularmatching, NP-completeness, polynomial algorithm, stable matching |
| JEL: | C63 C78 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:2003&r=all |
| By: | Agnes Cseh (Centre for Economic and Regional Studies, Institute of Economics); Attila Juhos (Department of Computer Science and Information Theory,Budapest University of Technologyand Economics) |
| Abstract: | We study the classical, two-sided stable marriage problem under pairwise preferences. In the most generalsetting, agents are allowed to express their preferences as comparisons of any two of their edges and they alsohave the right to declare a draw or even withdraw from such a comparison. This freedom isthen graduallyrestricted as we specify six stages of orderedness in the preferences, ending with the classical case of strictlyordered lists.We study all cases occurring when combining the three known notions of stability—weak, strongand super-stability—under the assumption that each side of the bipartite market obtains one of the six degreesof orderedness. By designing three polynomial algorithms and two NP-completeness proofs we determinethe complexity of all cases not yet known, and thus give an exact boundary in terms of preference structurebetween tractable and intractable cases. |
| Keywords: | stable marriage, intransitivity, acyclic preferences, poset, weakly stablematching, strongly stable matching, super stable matching |
| JEL: | C63 C78 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:2006&r=all |
| By: | Agnes Cseh (Centre for Economic and Regional Studies, Institute of Economics); Klaus Heeger (Technische Universität Berlin, Faculty IV Electrical Engineering and Computer Science, Institute of Software Engineering and Theoretical Computer Science, Chair of Algorithmics and Computational Complexity) |
| Abstract: | In the stable marriage problem, a set of men and a set of women are given, each of whom has a strictly ordered preference list over the acceptable agents in the opposite class. A matching is called stable if it is not blocked by any pair of agents, who mutually prefer each other to their respective partner. Ties in the preferences allow for three different definitions for a stable matching: weak, strong and super-stability. Besides this, acceptable pairs in the instance can be restricted in their ability of blocking a matching or being part of it, which again generates three categories of restrictions on acceptable pairs. Forced pairs must be in a stable matching, forbidden pairs must not appear in it, and lastly, free pairs cannot block any matching.Our computational complexity study targetsthe existence of a stable solution for each of the three stability definitions, in the presence of each of the three types of restricted pairs. We solve all cases that were still open. As a byproduct, we also derive that the maximum size weakly stable matching problem is hard even in very dense graphs, which may be of independent interest. |
| Keywords: | stable matchings, restricted edges,complexity |
| JEL: | C63 C78 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:20017&r=all |
| By: | Agnes Cseh (Centre for Economic and Regional Studies, Institute of Economics); Telikepalli Kavitha (Tata Institute of Fundamental Research, Mumbai, India) |
| Abstract: | Our input is a complete graph G on n vertices where each vertex has a strictranking of all other vertices in G. The goal is to construct a matching in G that is “globallystable” or popular. A matching M is popular if M does not lose a head-to-head election againstany matching M’: here each vertex casts a vote forthe matching in {M,M’} in which it gets abetter assignment. Popular matchings need not exist in the given instance G and the popularmatching problem is to decide whether one exists or not. The popular matching problem in Gis easy to solve for odd n. Surprisingly, the problem becomes NP-hard for even n, as we showhere. This seems to be the first graph theoretic problem that is efficiently solvable when n hasone parity and NP-hard when n has the other parity. |
| Keywords: | popularmatching, NP-completeness, polynomial algorithm, stable matching |
| JEL: | C63 C78 |
| Date: | 2020–04 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:2004&r=all |
| By: | Agnes Cseh (Centre for Economic and Regional Studies, Institute of Economics); Tamas Fleiner (Centre for Economic and Regional Studies, Institute of Economics and Department of Computer Science and Information Theory, Budapest University of Technology and Economics); Petra Harjan (Department of Computer Science and Information Theory, Budapest University of Technology and Economics) |
| Abstract: | We tackle the problem of partitioning players into groups of fixed size, such as allocating eligible students to shared dormitory rooms. Each student submits preferences over the other individual students. We study several settings, which differ in the size of the rooms to be filled, the orderedness or completeness of the preferences, and the way of calculating the value of a coalition---based on the best or worst roommate in the coalition. In all cases, we determine the complexity of deciding the existence, and then finding a Pareto optimal assignment, and the complexity of verifying Pareto optimality for a given assignment. |
| Keywords: | Pareto-optimality, coalition, game theory |
| JEL: | C63 C78 |
| Date: | 2020–01 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:2005&r=all |