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on Economic Design |
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Issue of 2021‒11‒29
eleven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Barelli, Paulo (?); Govindan, Srihari (?); Wilson, Robert (Stanford U) |
| Abstract: | We posit a standard model of an asymmetric double auction with interdependent values in which each trader observes a private signal about a hidden state before submitting a bid or ask price for a unit demand or supply. The state and signals are one-dimensional, traders’ signals are independent conditional on the state, and their distributions have the strict monotone likelihood ratio property. The model encompasses auctions by allowing sellers to be non-strategic. We study a version in which there are n replicates of each type of trader, with each replicate observing a signal drawn independently from the same conditional distribution as the original trader of that type, and all traders of the same type using the same strategy. The limit economy with a countable set of traders has a unique Walrasian equilibrium, whose clearing price reveals the state. If this equilibrium is totally monotone in that each buyer's (resp. seller's) probability of trading decreases (resp. increases) with the state, then the limit auction has a monotone equilibrium yielding the Walrasian price as the clearing price. We present four asymptotic results as n grows large: (1) a sequence of monotone strategies comprises epsilon-equilibria iff limit points are monotone equilibria of the limit auction; (2) for a sequence of monotone strategy profiles converging to a monotone equilibrium, the Strong Law of Large Numbers for prices holds, in that the sequence of price functions converges a.s. to the price function of the limit equilibrium; (3) if the effect of the state on traders' valuations is symmetric (around the equilibrium) then large but finite auctions have monotone equilibria whose outcomes approximate the Walrasian equilibrium outcome when bidders are restricted to sufficiently fine bid-grids; and (4) the same conclusion holds true without the symmetry assumption when we discretize the state space as well. Total monotonicity seems to be crucial: an example has a Walrasian equilibrium that is not the outcome of a Nash equilibrium of an auction. |
| JEL: | C7 D44 D82 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3984&r= |
| By: | Thomas Giebe; Radosveta Ivanova-Stenzel; Martin G. Kocher; Simeon Schudy |
| Abstract: | Overbidding in second-price auctions (SPAs) has been shown to be persistent and associated with cognitive ability. We study experimentally to what extent cross-game learning can reduce overbidding in SPAs, taking into account cognitive skills. Employing an order-balanced design, we use first-price auctions (FPAs) to expose participants to an auction format in which losses from high bids are more salient than in SPAs. Experience in FPAs causes substantial cross-game learning for cognitively less able participants but does not affect overbidding for the cognitively more able. Vice versa, experiencing SPAs before bidding in an FPA does not affect bidding behavior by the cognitively less able but, somewhat surprisingly, reduces bid shading by cognitively more able participants, resulting in lower profits in FPAs. Thus, cross-game learning has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher ability bidders. |
| Keywords: | cognitive ability, cross-game learning, experiment, auction, heuristics, first-price auctions, second-price auctions |
| JEL: | C72 C91 D44 D83 |
| Date: | 2021 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9396&r= |
| By: | Florens, Jean-Pierre; Enache, Andreea; Sbaï, Erwann |
| Date: | 2021–11–16 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126172&r= |
| By: | Endre Cs\'oka |
| Abstract: | Athey and Segal introduced an efficient budget-balanced mechanism for a dynamic stochastic model with quasilinear payoffs and private values, using the solution concept of perfect Bayesian equilibrium (PBE). However, this implementation is not robust in multiple senses. For example, we will show a generic setup where the efficient strategy profiles can be eliminated by iterative elimination of weakly dominated strategies. Furthermore, this model used strong assumptions about the information of the agents, and the mechanism was not robust to the relaxation of these assumptions. In this paper, we will show a different mechanism that implements efficiency under weaker assumptions and using the stronger solution concept of "efficient Nash equilibrium with guaranteed expected payoffs". |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.15219&r= |
| By: | Gian Caspari; Manshu Khanna |
| Abstract: | We explore the possibility of designing matching mechanisms that can accommodate non-standard choice behavior. We pin down the necessary and sufficient conditions on participants' choice behavior for the existence of stable and incentive compatible mechanisms. Our results imply that well-functioning matching markets can be designed to adequately accommodate a plethora of choice behaviors, including the standard behavior that is consistent with preference maximization. To illustrate the significance of our results in practice, we show that a simple modification in a commonly used matching mechanism enables it to accommodate non-standard choice behavior. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.06815&r= |
| By: | Samson Alva; Battal Do\u{g}an |
| Abstract: | A textbook chapter on modeling choice behavior and designing institutional choice functions for matching and market design. The chapter is to appear in: Online and Matching-Based Market Design. Federico Echenique, Nicole Immorlica and Vijay V. Vazirani, Editors. Cambridge University Press. 2021 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2110.15446&r= |
| By: | Haris Aziz; Alexander Lam; Barton E. Lee; Toby Walsh |
| Abstract: | We focus on a simple, one-dimensional collective decision problem (often referred to as the facility location problem) and explore issues of strategyproofness and proportional fairness. We present several characterization results for mechanisms that satisfy strategyproofness and varying levels of proportional fairness. We also characterize one of the mechanisms as the unique equilibrium outcome for any mechanism that satisfies natural fairness and monotonicity properties. Finally, we identify strategyproof and proportionally fair mechanisms that provide the best welfare-optimal approximation among all mechanisms that satisfy the corresponding fairness axiom. |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2111.01566&r= |
| By: | Dupuy, Arnaud (University of Luxembourg); Kennes, John (Aarhus University); Lyng, Ran Sun (University of Toronto) |
| Abstract: | We develop a two-sided multidimensional matching model of the market for CEOs that allows for both pecuniary and non-pecuniary (amenity) compensation. The model is estimated by maximum likelihood estimation using matched CEO-firm data from Denmark. We show that CEOs have preferences for building legacy and gaining empowerment. The legacy mechanism explains why there is low mobility in the CEO market, even though firms demand general CEO skills. The empowerment mechanism explains why CEOs are willing to sacrifice significant pecuniary income to manage high equity firms. The overall conclusion is that job amenities matter in the market for CEOs. |
| Keywords: | multidimensional matching, observed transfers, structural estimation, value of job amenities, taxation, CEO compensation, CEO performance |
| JEL: | G30 M12 C78 C35 D22 D31 J3 |
| Date: | 2021–10 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp14803&r= |
| By: | Blanchet, Jose H. (Stanford U); Reiman, Martin I. (Columbia U); Shah, Virag (Stanford U); Wein, Lawrence M. (Stanford U); Wu, Linjia (Stanford U) |
| Abstract: | We consider a matching market where buyers and sellers arrive according to independent Poisson processes at the same rate and independently abandon the market if not matched after an exponential amount of time with the same mean. In this centralized market, the utility for the system manager from matching any buyer and any seller is a general random variable. We consider a sequence of systems indexed by n where the arrivals in the nth system are sped up by a factor of n. We analyze two families of one-parameter policies: the population threshold policy immediately matches an arriving agent to its best available mate only if the number of mates in the system is above a threshold, and the utility threshold policy matches an arriving agent to its best available mate only if the corresponding utility is above a threshold. Using an asymptotic fluid analysis of the two-dimensional Markov process of buyers and sellers, we show that when the matching utility distribution is light-tailed, the population threshold policy with threshold n/ln n is asymptotically optimal among all policies that make matches only at agent arrival epochs. In the heavy-tailed case, we characterize the optimal threshold level for both policies. We also study the utility threshold policy in an unbalanced matching market with heavy-tailed matching utilities, and find that the buyers and sellers have the same asymptotically optimal utility threshold. To illustrate our theoretical results, we use extreme value theory to derive optimal thresholds when the matching utility distribution is exponential, uniform, Pareto, and correlated Pareto. In general, we find that as the right tail of the matching utility distribution gets heavier, the threshold level of each policy (and hence market thickness) increases, as does the magnitude by which the utility threshold policy outperforms the population threshold policy. |
| Date: | 2020–12 |
| URL: | http://d.repec.org/n?u=RePEc:ecl:stabus:3916&r= |
| By: | Levent Celik (University of London); Mikhail Drugov (New Economic School) |
| Abstract: | We study verifiable disclosure by a monopolist when the product has multiple quality attributes. We identify an equilibrium in which the firm discloses a score— the average of the qualities—without revealing any further information. While full unraveling is still an equilibrium, it is dominated by the score equilibrium in terms of ex ante as well as ex post profits. Moreover, it is “defeated†by the score equilibrium. |
| Keywords: | Monopoly, quality uncertainty, verifiable information disclosure, multi- dimensional types. |
| JEL: | D82 D83 L12 L15 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:abo:neswpt:w0285&r= |
| By: | Seungjin Han; Siyang Xiong |
| Abstract: | This paper provides a unified approach to equilibrium analysis in models for competing mechanisms (e.g., Szentes (2009), Yamashita (2010)), which may differ in terms of delegation of action choice, announcement of mechanisms, observability of messages, and equilibrium notions. |
| Keywords: | competing mechanisms; unified equilibrium analysis; multiple principals |
| JEL: | D82 C79 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2021-09&r= |