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on Economic Design |
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Issue of 2021‒11‒01
five papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Kenneth Hendricks; Thomas Wiseman |
| Abstract: | A seller with one unit of a good faces N\geq3 buyers and a single competitor who sells one other identical unit in a second-price auction with a reserve price. Buyers who do not get the seller's good will compete in the competitor's subsequent auction. We characterize the optimal mechanism for the seller in this setting. The first-order approach typically fails, so we develop new techniques. The optimal mechanism features transfers from buyers with the two highest valuations, allocation to the buyer with the second-highest valuation, and a withholding rule that depends on the highest two or three valuations. It can be implemented by a modified third-price auction or a pay-your-bid auction with a rebate. This optimal withholding rule raises significantly more revenue than would a standard reserve price. Our analysis also applies to procurement auctions. Our results have implications for sequential competition in mechanisms. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.13121&r= |
| By: | Guillaume Pommey (Università di Roma "Tor Vergata") |
| Abstract: | When partnerships come to an end, partners must find a way to efficiently reallocate the commonly owned assets to those who value them the most. This requires that the aforementioned members possess enough financial resources to buy out the others’ shares. I investigate ex post efficient partnership dissolution when agents are ex post cash constrained. I derive necessary and sufficient conditions for ex post efficient partnership dissolution with Bayesian (resp. dominant strategy) incentive compatible, interim individually rational, ex post (resp. ex ante) budget balanced and ex post cash-constrained mechanisms. Ex post efficient dissolution is more likely to be feasible when agents with low (resp. large) cash resources own more (resp. less) initial ownership rights. Furthermore, I propose a simple auction to implement the optimal mechanism. Finally, I investigate second-best mechanisms when cash constraints are such that ex post efficient dissolution is not attainable. |
| Keywords: | Mechanism design, Partnership, Ex post cash constraints, Property rights theory. |
| JEL: | D02 D23 D40 D44 D82 C72 |
| Date: | 2021–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:rtv:ceisrp:514&r= |
| By: | Agustin G. Bonifacio; Noelia Juarez; Pablo Neme; Jorge Oviedo |
| Abstract: | In a many-to-many matching model in which agents' preferences satisfy substitutability and the law of aggregate demand, we present an algorithm to compute the full set of stable matchings. This algorithm relies on the idea of "cycles in preferences" and generalizes the algorithm presented in Roth and Sotomayor (1990) for the one-to-one model. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.11846&r= |
| By: | Kamesh Munagala; Yiheng Shen; Kangning Wang; Zhiyi Wang |
| Abstract: | Motivated by civic problems such as participatory budgeting and multiwinner elections, we consider the problem of public good allocation: Given a set of indivisible projects (or candidates) of different sizes, and voters with different monotone utility functions over subsets of these candidates, the goal is to choose a budget-constrained subset of these candidates (or a committee) that provides fair utility to the voters. The notion of fairness we adopt is that of core stability from cooperative game theory: No subset of voters should be able to choose another blocking committee of proportionally smaller size that provides strictly larger utility to all voters that deviate. The core provides a strong notion of fairness, subsuming other notions that have been widely studied in computational social choice. It is well-known that an exact core need not exist even when utility functions of the voters are additive across candidates. We therefore relax the problem to allow approximation: Voters can only deviate to the blocking committee if after they choose any extra candidate (called an additament), their utility still increases by an $\alpha$ factor. If no blocking committee exists under this definition, we call this an $\alpha$-core. Our main result is that an $\alpha$-core, for $\alpha 1.015$ for submodular utilities, and a lower bound of any function in the number of voters and candidates for general monotone utilities. |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.12499&r= |
| By: | Nikhil Agarwal; Eric Budish |
| Abstract: | This Handbook chapter seeks to introduce students and researchers of industrial organization (IO) to the field of market design. We emphasize two important points of connection between the IO and market design fields: a focus on market failures—both understanding sources of market failure and analyzing how to fix them—and an appreciation of institutional detail. Section II reviews theory, focusing on introducing the theory of matching and assignment mechanisms to a broad audience. It introduces a novel “taxonomy” of market design problems, covers the key mechanisms and their properties, and emphasizes several points of connection to traditional economic theory involving prices and competitive equilibrium. Section III reviews structural empirical methods that build on this theory. We describe how to estimate a workhorse random utility model under various data environments, ranging from data on reported preference data such as rank-order lists to data only on observed matches. These methods enable a quantification of trade-offs in designing markets and the effects of new market designs. Section IV discusses a wide variety of applications. We organize this discussion into three broad aims of market design research: (i) diagnosing market failures; (ii) evaluating and comparing various market designs; (iii) proposing new, improved designs. A point of emphasis is that theoretical and empirical analysis have been highly complementary in this research. |
| JEL: | C78 D47 L00 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29367&r= |