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on Economic Design |
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Issue of 2021‒06‒21
seven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Afacan, Mustafa Oguz; Evdokimov, Piotr; Hakimov, Rustamdjan; Turhan, Bertan |
| Abstract: | When applying to schools, students often submit applications to distinct school systems that operate independently, which leads to waste and distortions of stability due to miscoordination. To alleviate this issue, Manjunath and Turhan (2016) introduce the Iterative Deferred Acceptance mechanism (IDA); however, this mechanism is not strategy-proof. We design an experiment to compare the performance of this mechanism under parallel markets (DecDA2) to the classic Deferred Acceptance mechanism with both divided (DecDA) and unified markets (DA). Consistent with the theory, we find that both stability and efficiency are highest under DA, intermediate under DecDA2, and lowest under DecDA. We observe that some subjects use strategic reporting when predicted, leading to improved efficiency for all participants of the market. Our findings cast doubt on whether strategy-proofness should be perceived as a universal constraint to market mechanisms. |
| Date: | 2021–06–13 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genstf:202106130700001128&r= |
| By: | Letina, Igor; Liu, Shuo; Netzer, Nick |
| Abstract: | We consider the design of contests for n agents when the principal can choose both the prize profile and the contest success function. Our framework includes Tullock contests, Lazear-Rosen tournaments and all-pay contests as special cases, among others. We show that the optimal contest has an intermediate degree of competitiveness in the contest success function, and a minimally competitive prize profile with n-1 identical prizes. The optimum can be achieved with a nested Tullock contest. We extend the model to allow for imperfect performance measurement and for heterogeneous agents. We relate our results to a recent literature which has asked similar questions but has typically focused on the design of either the prize profile or the contest success function. |
| Keywords: | contest design; optimal contests; tournaments |
| JEL: | D02 D82 M52 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14854&r= |
| By: | Yukihiko Funaki (Waseda University); Emmanuel Sol (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Marc Willinger (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | We study experimentally a three player sequential and symmetric coalition formation game with empty core. In each round a randomly chosen proposer must choose between a two players coalition or a three players coalition and decide about the payoff division among the coalition members. Players who receive a proposition can accept or reject it. In case of acceptance the game ends. If it is rejected, a new proposer is randomly selected. The game was played repeatedly, with randomly rematched groups. We observe that over 86% of the realized coalitions are two-players coalitions. Three players coalitions are often observed in early rounds but are frequently rejected. Equal splits are the most frequently observed divisions among coalition members, and their frequency increases sharply over time. We propose an extension of von Neumann and Morgenstern (1944)'s notion of stable set to account for our results. |
| Date: | 2021–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-03227388&r= |
| By: | Ioannis Panageas; Thorben Tr\"obst; Vijay V. Vazirani |
| Abstract: | This paper is an attempt to deal with the recent realization (Vazirani, Yannakakis 2021) that the Hylland-Zeckhauser mechanism, which has remained a classic in economics for one-sided matching markets, is likely to be highly intractable. HZ uses the power of a pricing mechanism, which has endowed it with nice game-theoretic properties. Hosseini and Vazirani (2021) define a rich collection of Nash-bargaining-based models for one-sided and two-sided matching markets, in both Fisher and Arrow-Debreu settings, together with implementations using available solvers, and very encouraging experimental results. This naturally raises the question of finding efficient combinatorial algorithms for these models. In this paper, we give efficient combinatorial algorithms based on the techniques of multiplicative weights update (MWU) and conditional gradient descent (CGD) for several one-sided and two-sided models defined in HV 2021. Additionally, we define for the first time a Nash-bargaining-based model for non-bipartite matching markets and solve it using CGD. Furthermore, in every case, we study not only the Fisher but also the Arrow-Debreu version; the latter is also called the exchange version. We give natural applications for each model studied. These models inherit the game-theoretic and computational properties of Nash bargaining. We also establish a deep connection between HZ and the Nash-bargaining-based models, thereby confirming that the alternative to HZ proposed in HV 2021 is a principled one. |
| Date: | 2021–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2106.02024&r= |
| By: | Maria Gabriella Graziano (Università di Napoli Federico II and CSEF); Claudia Meo (Università di Napoli Federico II); Nicholas C. Yannelis (University of Iowa) |
| Abstract: | It is known that the core of an economy with externalities may be empty. We consider two concepts of dominance that allow us to prove that the set formed by individually rational, Pareto optimal allocations is stable and coincides with the core that, consequently, is non-empty. |
| Keywords: | Other-regarding Preferences; Externalities; Stable Sets; Core. |
| JEL: | C71 D51 D70 |
| Date: | 2021–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:sef:csefwp:617&r= |
| By: | Baldwin, Elizabeth; Goldberg, Paul; Klemperer, Paul; Lock, Edwin |
| Abstract: | This paper develops algorithms to solve strong-substitutes product-mix auctions: it finds competitive equilibrium prices and quantities for agents who use this auction's bidding language to truthfully express their strong-substitutes preferences over an arbitrary number of goods, each of which is available in multiple discrete units. Our use of the bidding language, and the information it provides, contrasts with existing algorithms that rely on access to a valuation or demand oracle. We compute market-clearing prices using algorithms that apply existing submodular minimisation methods. Allocating the supply among the bidders at these prices then requires solving a novel constrained matching problem. Our algorithm iteratively simplifies the allocation problem, perturbing bids and prices in a way that resolves tie-breaking choices created by bids that can be accepted on more than one good. We provide practical running time bounds on both price-finding and allocation, and illustrate experimentally that our allocation mechanism is practical. |
| Keywords: | bidding language; Competitive Equilibrium; convex optimisation; product-mix auction; strong substitutes; submodular minimisation; Walrasian Equilibrium |
| JEL: | D44 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14976&r= |
| By: | Baldwin, Elizabeth; Edhan, Omer; Jagadeesan, Ravi; Klemperer, Paul; Teytelboym, Alex |
| Abstract: | We show that, with indivisible goods, the existence of competitive equilibrium fundamentally depends on agents' substitution effects, not their income effects. Our Equilibrium Existence Duality allows us to transport results on the existence of competitive equilibrium from settings with transferable utility to settings with income effects. One consequence is that net substitutability-which is a strictly weaker condition than gross substitutability-is sufficient for the existence of competitive equilibrium. We also extend the "demand types" classification of valuations to settings with income effects and give necessary and sufficient conditions for a pattern of substitution effects to guarantee the existence of competitive equilibrium. |
| JEL: | C62 D11 D44 |
| Date: | 2020–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:14926&r= |