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on Economic Design |
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Issue of 2022‒07‒25
seven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Bara Kim (Department of Mathematics, Korea University, South Korea); Seung Han Yoo (Department of Economics, Korea University, South Korea) |
| Abstract: | This paper studies an informed mechanism designer problem in which the principal's private information is a number of agents. We define mechanical equivalence such that it holds if each agent's and the principal's perspectives are consistent in the sense that a conversion problem for a grand mechanism is resolved - each agent's expected payment taking into account the principal's private information can be incorporated into the principal's revenue. With mechanical equivalence and, additionally, the principal's expected payoff linearity, there is a single threshold for the optimal grand mechanism if a sub-mechanism cannot depend on the principal's private information. Interestingly, the main result shows that if a sub-mechanism can also depend on his private information, the optimal grand mechanism is characterized by double thresholds such that the principal does not announce the number of agents if it is in the middle range. We further extend the signal structure to include rich signal sets. |
| Keywords: | informed principal, mechanism, population uncertainty, mechanical equivalence |
| JEL: | C72 D44 D82 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:iek:wpaper:2204&r= |
| By: | Onur A. Koska (University of Canterbury); Frank Stähler |
| Abstract: | This paper discusses the role of secret versus public reserve prices when bidders’ valuations depend positively on the seller’s private signal. A public reserve price is announced before the auction starts, and a secret reserve price is disclosed after the highest bid has been reached. The public reserve price regime may warrant a distortion as a good seller type may have to increase the reserve price beyond payoff-maximization in order to be able to credibly signal her type. We introduce and determine a rational signaling equilibrium which adds two domination-based conditions to the belief structure of a weak perfect Bayesian equilibrium. We show that a secret (public) reserve price design qualifies as an equilibrium if the distortion is large (small). |
| Keywords: | Auctions; Interdependent values; Optimal reserve prices; Rational signaling |
| JEL: | D44 |
| Date: | 2022–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:cbt:econwp:22/10&r= |
| By: | Antonio Estache; Renaud Foucart; Tomas Serebrisky |
| Abstract: | We study the feasibility, challenges, and potential benefits of adding a lottery component to standard negotiated and rule-based procurement procedures. For negotiated procedures, we introduce a “discrete lottery” in which local bureaucrats negotiate with a small number of selected bidders and a lottery decides who is awarded the contract. We show that the discrete lottery performs better than a standard negotiated procedure when the pool of firms to choose from is large and corruption is high. For rule-based auction procedures, we introduce a “third-price lottery” in which the two highest bidders are selected with equal probability and the project is contracted at a price corresponding to the third highest bid. We show that the third-price lottery reduces the risks from limited liability and renegotiation. It performs better than a standard second-price or ascending auction when the suppliers’ pool size, the risk of cost overrun, delays and non-delivery of the project are high. The choice between a second-price auction, a third price lottery and a lottery amongst all bidders also depends on the weight placed on producer surplus, including for instance the desire to increase the participation of local SMEs in public sector services markets. |
| Keywords: | rules, discretion, procurement, lotteries, corruption, auctions |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/345092&r= |
| By: | Koessler, Frédéric; Laclau, Marie; Renault, Jérôme; Tomala, Tristan |
| Abstract: | We analyze information design games between two designers with opposite preferences and a single agent. Before the agent makes a decision, designers repeatedly disclose public information about persistent state parameters. Disclosure continues until no designer wishes to reveal further information. We consider environments with general constraints on feasible information disclosure policies. Our main results characterize equilibrium payoffs and strategies of this long information design game and compare them with the equilibrium outcomes of games where designers move only at a single predetermined period. When information disclosure policies are unconstrained, we show that at equilibrium in the long game, information is revealed right away in a single period; otherwise, the number of periods in which information is disclosed might be unbounded. As an application, we study a competition in product demonstration and show that more information is revealed if each designer could disclose information at a predetermined period. The format that provides the buyer with most information is the sequential game where the last mover is the ex-ante favorite seller. |
| JEL: | C72 D82 |
| Date: | 2022–06–16 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127034&r= |
| By: | Juan Ortner (Boston University); Sylvain Chassang (Princeton University); Kei Kawai (University of California, Berkeley); Jun Nakabayashi (Kindai University) |
| Abstract: | We propose an equilibrium theory of data-driven antitrust oversight in which regulators launch investigations on the basis of suspicious bidding patterns and cartels can adapt to the statistical screens used by regulators. We emphasize the use of asymptotically safe tests, i.e. tests that are passed with probability approaching one by competitive firms, regardless of the underlying economic environment. Our main result establishes that screening for collusion with safe tests is a robust improvement over laissez-faire. Safe tests do not create new collusive equilibria, and do not hurt competitive industries. In addition, safe tests can have strict bite, including unraveling all collusive equilibria in some settings. We provide evidence that cartel adaptation to regulatory oversight is a real concern. |
| Keywords: | collusion, auctions, bidding rings, cartels, procurement, antitrust |
| JEL: | D44 L40 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:300&r= |
| By: | Akira Matsushita; Kei Ikegami; Kyohei Okumura; Yoji Tomita; Atsushi Iwasaki |
| Abstract: | This paper develops a framework to conduct a counterfactual analysis to regulate matching markets with regional constraints that impose lower and upper bounds on the number of matches in each region. Our work is motivated by the Japan Residency Matching Program, in which the policymaker wants to guarantee the least number of doctors working in rural regions to achieve the minimum standard of service. Among the multiple possible policies that satisfy such constraints, a policymaker wants to choose the best. To this end, we develop a discrete choice model approach that estimates the utility functions of agents from observed data and predicts agents' behavior under different counterfactual policies. Our framework also allows the policymaker to design the welfare-maximizing tax scheme, which outperforms the policy currently used in practice. Furthermore, a numerical experiment illustrates how our method works. |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2205.14387&r= |
| By: | Thomas Daske; Christoph March |
| Abstract: | This study explores mechanism design with allocation-based social preferences. Agents’ social preferences and private payoffs are all subject to asymmetric information. We assume quasi-linear utility and independent types. We show how the asymmetry of information about agents’ social preferences can be operationalized to satisfy agents’ participation constraints. Our main result is a possibility result for groups of at least three agents: If endowments are sufficiently large, any such group can resolve any given allocation problem with an ex-post budget-balanced mechanism that is Bayesian incentive-compatible, interim individually rational, and ex-post Pareto-efficient. |
| Keywords: | mechanism design, social preferences, Bayesian implementation, participation constraints, participation stimulation |
| JEL: | C72 C78 D62 D82 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9784&r= |