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on Economic Design |
| By: | Andrew Komo; Scott Duke Kominers; Tim Roughgarden |
| Abstract: | In a single-item auction, a duplicitous seller may masquerade as one or more bidders in order to manipulate the clearing price. This paper characterizes auction formats that are shill-proof: a profit-maximizing seller has no incentive to submit any shill bids. We distinguish between strong shill-proofness, in which a seller with full knowledge of bidders' valuations can never profit from shilling, and weak shill-proofness, which requires only that the expected equilibrium profit from shilling is nonpositive. The Dutch auction (with suitable reserve) is the unique optimal and strongly shill-proof auction. Moreover, the Dutch auction (with no reserve) is the unique prior-independent auction that is both efficient and weakly shill-proof. While there are a multiplicity of strategy-proof, weakly shill-proof, and optimal auctions; any optimal auction can satisfy only two properties in the set {static, strategy-proof, weakly shill-proof}. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.00475&r=des |
| By: | Tayfun Sönmez (Boston College); M. Utku Ünver (Boston College) |
| Abstract: | We survey the literature on matching theory under non-transferable utility using a classification based on property rights (i) with private ownership, (ii) with common and mixed ownership, and (iii) under priority-based entitlements. |
| Keywords: | Matching Theory, Housing Markets, Two-sided Matching, Roommates Problem, Kidney Exchange, House Allocation, Student Placement, Reserve Systems |
| JEL: | C78 D47 |
| Date: | 2024–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:1068&r=des |
| By: | Tayfun Sönmez (Boston College); M. Utku Ünver (Boston College) |
| Abstract: | We survey the literature on applications of matching theory under non- transferable utility. We cover the following six applications in detail: living-donor kid- ney exchange, living-donor liver exchange, cadet-branch matching in the US Army, affirmative action in India, matching market for entry-level physicians in the US, and course allocation at universities. We also survey other notable applications. |
| Keywords: | Matching Theory, Market Design, Kidney Exchange, Liver Exchange, Cadet- Branch Matching, Affirmative Action in India, Matching for Residency Programs, NRMP, Unraveling, Course Allocation, College Admissions, School Choice, Pandemic Resource Al- location, Reserve Systems, Matching under Distributional Constraints, Matching with Reassignment, Balancedness in Matching, Refugee Resettlement |
| JEL: | C78 D47 |
| Date: | 2024–04–15 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:1069&r=des |
| By: | Isa Hafalir; Donglai Luo; Cong Tao |
| Abstract: | We examine the unique format of the Istanbul Flower Auction and compare it to traditional Dutch and English auctions, emphasizing the need to auction large volumes rapidly. In a model with time costs, we study how this auction format, which cleverly combines Dutch and English auction mechanisms, manages time costs by dynamically adapting to initial bidding behaviors. Our numerical analysis considers specific time cost functions and reveals the high performance of the Istanbul Flower Auction in comparison to standard auction formats, in terms of both auctioneer and bidder utilities. This work highlights the critical role of auction design in improving social welfare, particularly in scenarios demanding the quick sale of numerous lots. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.08288&r=des |
| By: | Jorge Arenas; Juan Pablo Torres-Martinez |
| Abstract: | In a class of three-sided matching problems that always have stable solutions, we show that no stable mechanism is strategy-proof for those who internalize the trilateral structure in their preferences. Furthermore, strong restrictions on preferences are needed to ensure that stability and one-sided strategy-proofness are compatible for all sides of the market. These results are related to the incompatibility between stability and one-sided group strategy-proofness in two-sided markets. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:udc:wpaper:wp558&r=des |
| By: | Basteck, Christian |
| Abstract: | We study the problem of assigning indivisible objects to agents where each is to receive one object. To ensure fairness in the absence of monetary compensation, we consider random assignments. Random Priority, also known as Random Serial Dictatorship, is characterized by symmetry, ex-post efficiency, and probabilistic (Maskin) monotonicity - whenever preferences change so that a given deterministic assignment is ranked weakly higher by all agents, the probability of that assignment being chosen should be weakly larger. Probabilistic monotonicity implies strategy-proofness for random assignment problems and is equivalent on a general social choice domain; for deterministic rules it coincides with Maskin monotonicity. |
| Keywords: | Random Assignment, Random Priority, Random Serial Dictatorship, Ex-Post Efficiency, Probabilistic Monotonicity, Maskin Monotonicity |
| JEL: | C70 C78 D63 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:290390&r=des |
| By: | Jonas von Wangenheim |
| Abstract: | Consumer data increasingly enable online marketplaces to identify buyers’ preferences and provide individualized product information. Buyers, however, fully learn their product value only after contracting, when the product is delivered. I characterize the impact of such ex-ante information on buyer surplus and seller surplus, when the seller sets prices and refund conditions in response to the ex-ante information. I show that efficient trade and an arbitrary split of the surplus can be achieved. For the buyer- optimal signal low-valuation buyers remain partially uninformed. Such a signal induces the seller to sell at low prices without refund options. |
| Keywords: | information disclosure, sequential screening, information design, strategic learning, Bayesian persuasion, mechanism design, platform economics, consumer protection |
| JEL: | D82 D47 D18 |
| Date: | 2022–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2022_352v2&r=des |
| By: | Ata Atay; Marina N\'u\~nez; Tam\'as Solymosi |
| Abstract: | This paper studies many-to-one assignment markets, or matching markets with wages. Although it is well-known that the core of this model is non-empty, the structure of the core has not been fully investigated. To the known dissimilarities with the one-to-one assignment game, we add that the bargaining set does not coincide with the core and the kernel may not be included in the core. Besides, not all extreme core allocations can be obtained by means of a lexicographic maximization or a lexicographic minimization procedure, as it is the case in the one-to-one assignment game. The maximum and minimum competitive salaries are characterized in two ways: axiomatically and by means of easily verifiable properties of an associated directed graph. Regarding the remaining extreme core allocations of the many-to-one assignment game, we propose a lexicographic procedure that, for each order on the set of workers, sequentially maximizes or minimizes each worker's competitive salary. This procedure provides all extreme vectors of competitive salaries, that is all extreme core allocations. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.04847&r=des |
| By: | Daniel Freund; S\'ebastien Martin; Jiayu Kamessi Zhao |
| Abstract: | Flexibility is a cornerstone of operations management, crucial to hedge stochasticity in product demands, service requirements, and resource allocation. In two-sided platforms, flexibility is also two-sided and can be viewed as the compatibility of agents on one side with agents on the other side. Platform actions often influence the flexibility on either the demand or the supply side. But how should flexibility be jointly allocated across different sides? Whereas the literature has traditionally focused on only one side at a time, our work initiates the study of two-sided flexibility in matching platforms. We propose a parsimonious matching model in random graphs and identify the flexibility allocation that optimizes the expected size of a maximum matching. Our findings reveal that flexibility allocation is a first-order issue: for a given flexibility budget, the resulting matching size can vary greatly depending on how the budget is allocated. Moreover, even in the simple and symmetric settings we study, the quest for the optimal allocation is complicated. In particular, easy and costly mistakes can be made if the flexibility decisions on the demand and supply side are optimized independently (e.g., by two different teams in the company), rather than jointly. To guide the search for optimal flexibility allocation, we uncover two effects, flexibility cannibalization, and flexibility abundance, that govern when the optimal design places the flexibility budget only on one side or equally on both sides. In doing so we identify the study of two-sided flexibility as a significant aspect of platform efficiency. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.04709&r=des |
| By: | Grace, Charlotte (Nuffield College, University of Oxford) |
| Abstract: | This paper provides a method for comparing the performance of different models of bidding behaviour. It uses data on participants’ bids but does not require data on their values. I find that a model of ‘truthful bidding’ – bidding one’s true value for liquidity – outperforms a conventional model in which bidders shade their bids to maximise their expected surpluses, in the Bank of England’s uniform-price divisible-good liquidity auctions. I provide two possible explanations for this result. First, when bidders are sufficiently risk averse, optimal strategies in the conventional model approximate truthful bidding. For the conventional model, I develop new identifying conditions which allow for risk aversion. I find that the degree of risk aversion required for truthful bidding to be approximately optimal is consistent with that found in studies that are the most similar to my setting. Second, the optimal strategy can be complicated. Truthful bidding is preferable, even for risk neutral bidders, if the cost of calculating what would otherwise be the optimal strategy exceeds around 5% of bidder surplus. |
| Keywords: | Auctions; bid shading; central bank liquidity provision; product mix auction |
| JEL: | D44 E58 |
| Date: | 2024–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:1061&r=des |
| By: | Irene Aldridge |
| Abstract: | This paper proposes a fast Markov Matrix-based methodology for computing Top Trading Cycles (TTC) that delivers O(1) computational speed, that is speed independent of the number of agents and objects in the system. The proposed methodology is well suited for complex large-dimensional problems like housing choice. The methodology retains all the properties of TTC, namely, Pareto-efficiency, individual rationality and strategy-proofness. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.15111&r=des |
| By: | Debraj Ray (New York University (NYU)); Marek Weretka (Group for Research in Applied Economics (GRAPE); University of Wisconsin-Madison) |
| Abstract: | This paper studies contracting between a principal and multiple agents, as in Lazear and Rosen (1981) and Green and Stokey (1983). The setup is classical except for the assumption that agents have interdependent preferences. We characterize cost effective contracts, and relate the direction of co-movement in rewards- "joint liability" (positive) or "tournaments" (negative) – to the assumed structure of preference interdependence. WE also study the implications of preference interdependence for the principal's playoffs. We identify two asymmetries. First, the optimal contract leans towards joint liability rather than tournaments, especially in larger teams, in a sense made precise in the paper. Second, when the mechanism-design problem is augmented by robustness constraints designed to eliminate multiple equilibria, the principal may prefer teas linked via adversarial rather than altruistic preferences. |
| Keywords: | interdependent payoffs, joint liability, tournaments |
| JEL: | C72 D64 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:fme:wpaper:92&r=des |