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on Economic Design |
| By: | Groh, Carl-Christian; Reuter, Marco |
| Abstract: | We study optimal mechanisms for a utilitarian designer who seeks to assign a finite number of goods to a group of ex ante heterogeneous agents with unit demand. The agents have heterogeneous marginal utilities of money, which may naturally arise in environments where agents have different wealth levels or financing conditions. We show that the utilitarian optimal allocation rule deviates from the ex post efficient allocation rule in two ways, namely by (1) allocating the good to agents with lower willingnesses to pay in certain situations and (2) by potentially keeping some units of the good unallocated. We also highlight how our mechanism can be implemented as an auction with minimum bids and bidding subsidies. |
| Keywords: | optimal mechanism design, redistribution, inequality, auctions |
| JEL: | D44 D47 D61 D63 D82 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:zewdip:280984&r=des |
| By: | Tayfun S\"onmez |
| Abstract: | Earlier in my career, prevalent approaches in the emerging field of market design largely represented the experiences and perspectives of leaders who were commissioned to design or reform various institutions. Since being commissioned for a similar task seemed unlikely for me as an aspiring design economist, I developed my own minimalist approach to market design. Using the policy objectives of stakeholders, my approach creates a new institution from the existing one with minimal interference with its elements that compromise the objectives. Minimalist market design initially evolved through my integrated research and policy efforts in school choice from 1997 to 2005 and in kidney exchange from 2003 to 2007. Given its success in school choice and kidney exchange, I systematically followed this approach in many other, often unusual real-world settings. In recent years, my efforts in minimalist market design led to the 2021 reform of the US Army's branching system for its cadets to military specialties, the adoption of reserve systems during the Covid-19 pandemic for vaccine allocation in 15 states and therapies in 2 states, and the deployment of a highly efficient liver exchange system in T\"urkiye. This same methodology also predicted the rescission of a 1995 Supreme Court judgment in India, resulting in countless litigations and interruptions of public recruitment for 25 years, as well as the mandates of its replacement. In this monograph, I describe the philosophy, evolution, and successful applications of minimalist market design, contrasting it with the mainstream paradigm for the field. In doing so, I also provide a paradigm for economists who want to influence policy and change institutions through their research. |
| Date: | 2023–12 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.00307&r=des |
| By: | Qin, Botao; Shogren, Jason |
| Abstract: | Herein, we examine the optimal contract design when social norms have a disutility on landowners' participation in payment for environmental services programs. We find that a regulator can use less powerful monetary incentives to induce landowners to retire more land when the regulator appeals to social norms. Next, we consider the case when landowners determine the social norms of land retirement endogenously given that they live in small communities. We find that when there is asymmetric information about personal norms, the high-personal-norm type will retire more than the optimal amount of land and the low-personal-norm type will retire less than the optimal amount of land. We also explore when there is asymmetric information about landowners' sensitivities to social norms. We find that the optimal contract design depends on the relative magnitude of landowners' personal norms and the expected social norms. The results differ from the standard mechanism design literature. |
| Keywords: | Social norms, Mechanism design, Payment for environmental services, Asymmetric information |
| JEL: | D82 D91 Q57 |
| Date: | 2023–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:112878&r=des |
| By: | Masahiro Kato; Kyohei Okumura; Takuya Ishihara; Toru Kitagawa |
| Abstract: | Individualized treatment recommendation is a crucial task in evidence-based decision-making. In this study, we formulate this task as a fixed-budget best arm identification (BAI) problem with contextual information. In this setting, we consider an adaptive experiment given multiple treatment arms. At each round, a decision-maker observes a context (covariate) that characterizes an experimental unit and assigns the unit to one of the treatment arms. At the end of the experiment, the decision-maker recommends a treatment arm estimated to yield the highest expected outcome conditioned on a context (best treatment arm). The effectiveness of this decision is measured in terms of the worst-case expected simple regret (policy regret), which represents the largest difference between the conditional expected outcomes of the best and recommended treatment arms given a context. Our initial step is to derive asymptotic lower bounds for the worst-case expected simple regret, which also implies ideal treatment assignment rules. Following the lower bounds, we propose the Adaptive Sampling (AS)-Policy Learning recommendation (PL) strategy. Under this strategy, we randomly assign a treatment arm with a ratio of a target assignment ratio at each round. At the end of the experiment, we train a policy, a function that recommends a treatment arm given a context, by maximizing the counterfactual empirical policy value. Our results show that the AS-PL strategy is asymptotically minimax optimal, with its leading factor of expected simple regret converging with our established worst-case lower bound. This research has broad implications in various domains, and in light of existing literature, our method can be perceived as an adaptive experimental design tailored for policy learning, on-policy learning, or adaptive welfare maximization. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.03756&r=des |
| By: | Nicola Francescutto |
| Abstract: | I employ household-level data over 2006-2017 to quantify the impact of retirement on gasoline consumption. Based on a fuzzy regression discontinuity design, I show that gasoline consumption declines by 32-36 percent on average over my different specifications. The reduction reaches 59-66 percent when I restrict the sample to single-person households. I further find that the probability to use any gasoline decreases by 5-6 percent at retirement (13-16 percent for single-person households). These findings suggest that demographic trends represent an important driver of CO2 emissions as- sociated with private mobility in developed countries. |
| Keywords: | gasoline consumption; retirement effect; Household expenditure survey; fuzzy regression discontinuity design |
| JEL: | C21 C23 D12 Q4 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:irn:wpaper:24-01&r=des |
| By: | De Petris, Caterina; Drechsler, Martin |
| Abstract: | Payments for Ecosystem Services (PES) are an incentive-based policy instrument encouraging landowners to adopt conservation practices that enhance ecosystem services in exchange for a compensation payment. PES schemes vary considerably in their design, yielding important implications for their conservation outcome and their cost-effectiveness. Given that a landowner’s probability of re-enrolling in a PES scheme is significantly influenced by social norms, this article explores whether the cost-effectiveness of PES schemes could be increased by leveraging on social norms. In particular, we explore whether designing dynamic PES schemes in which a homogenous PES payment is reduced in subsequent contracts would be more cost-effective than static schemes under the assumption that some landowners will enrol or re-enrol in the scheme encouraged by the behaviours of neighbouring landowners. We analyse whether, by initially setting a high payment so as to build a partially conserved landscape, it would be possible to leverage on social norms and reduce the PES payment without losing much conservation engagement. For this purpose, a conceptual agent-based simulation model entailing social norms and bounded rationality as well as other-regarding preferences has been developed. |
| Keywords: | Payment for Ecosystem Services (PES); agri-environment schemes (AES); social norms; bounded rationality; ecological-economic modelling; agent-based modelling (ABM) |
| JEL: | C6 Q57 Q58 |
| Date: | 2023–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119534&r=des |
| By: | Lin William Cong; Shiyang Huang; Douglas Xu |
| Abstract: | We model financial innovations such as Exchange-Traded Funds, smart beta products, and many index-based vehicles as composite securities (CSs) that facilitate trading the common factors in assets' liquidation values. Through accessing a larger basket of assets in endogenously chosen proportions, CSs reduce investors' duplication of effort in trading multiple securities and attract more factor investors. We characterize analytically how competitive CS designers in equilibrium optimally select liquid underlying assets representative of the factors and find corroborating evidence in ETF data. CS trading entails investors' strategic and active decisions, consequently impounding more systematic information into prices. Their rise creates leads to greater informational efficiency, price variability, and co-movements in the underlying asset markets, as well as potentially heterogeneous effects on liquidity and asset-specific information acquisition/incorporation, depending on the importance of factors for asset value. The predictions explain and reconcile the rich (and often mixed) empirical observations about various types of CSs in the extant literature. |
| JEL: | D40 D82 G11 G14 G23 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32016&r=des |