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Showing papers in "Review of Economic Design in 2003"


Journal ArticleDOI
TL;DR: In this paper, the authors design the revenue-maximizing auction for two objects when each buyer has bi-dimensional private information and a superadditive utility function (i.e., a synergy is generated if a buyer wins both goods).
Abstract: We design the revenue-maximizing auction for two objects when each buyer has bi-dimensional private information and a superadditive utility function (i.e., a synergy is generated if a buyer wins both goods). In this setting the seller is likely to allocate the objects inefficiently with respect to an environment with no synergies (see Armstrong, RES (2000)). In particular, the objects may be bundled too rarely or a buyer may win the bundle even though her valuations for the goods are weakly dominated by the values of another buyer.

53 citations


Journal ArticleDOI
TL;DR: In this article, the authors consider sequential second-price auctions where an individual's value for a bundle of objects is either greater than the sum of the values for the objects separately (positive synergy) or less than their sum (negative synergy).
Abstract: In this paper we consider sequential second-price auctions where an individual's value for a bundle of objects is either greater than the sum of the values for the objects separately (positive synergy) or less than the sum (negative synergy). We show that the existence of positive synergies implies declining expected prices. When synergies are negative, expected prices are increasing.

42 citations


Journal ArticleDOI
TL;DR: In this paper, the authors characterize an optimal procurement policy as a mechanism design problem when an allotment of the contract is available, i.e., when a government faces both SMEs and large firms for carrying out a heterogeneously divisible project.
Abstract: In this paper, we characterize an optimal procurement policy as a mechanism design problem when an allotment of the contract is available, i.e., when a government faces both SMEs and large firms for carrying out a heterogeneously divisible project. Our model allows us to analyze all procurement policies (set-asides, favoritism, non-discriminatory rules), taking into account both efficiency and distributive arguments and derive a normative framework. We show that set-asides are not generally optimal, whatever the industrial preferences of the government are, while the optimal preferential treatments of firms implies complex non-linear rules. We prove that the optimal policy can be implemented using a modified Vickrey-type auction. We also consider that the firms can reduce their cost by a non observable effort, and exhibit the specific impact of cost reduction incentives on the optimal policies.

40 citations


Journal ArticleDOI
TL;DR: In this article, it was shown that if the cost of information is not prohibitively high, then the equilibrium price in a uniform price auction will not aggregate private information, in contrast to the costless information case.
Abstract: Consider an auction in which k identical objects are sold to n > k bidders who each have a value for one object which can have both private and common components to it. Private information concerning the common component of the object is not exogenously given, but rather endogenous and bidders face a cost to becoming informed. If the cost of information is not prohibitively high, then the equilibrium price in a uniform price auction will not aggregate private information, in contrast to the costless information case. Moreover, for a wide class of auctions if the cost of information is not prohibitively high then the objects can only be allocated in a weakly efficient sense, and then only if the equilibrium proportion of endogenously informed agents is vanishing as the economy grows. In spite of these results, it is shown that there is a mechanism for which there exist equilibria and for which (weak) efficiency is achieved as the economy grows in the face of endogenous information acquisition.

33 citations


Journal ArticleDOI
TL;DR: (division) rules that are non-manipulable via (pairwise) splitting and that also satisfy standard axioms of equal treatment of equals, consistency, and continuity are characterized.
Abstract: In claims problems, we study coalitional manipulations via claims merging and splitting. We characterize (division) rules that are non-manipulable via (pairwise) splitting and that also satisfy standard axioms of equal treatment of equals, consistency, and continuity. And we obtain a similar result for non-manipulability via (pairwise) merging.

33 citations


Journal ArticleDOI
TL;DR: In this article, the authors characterize the optimal insurance contract in an environment where an informed agent can misrepresent the state of the world to a principal who cannot credibly commit to an auditing strategy.
Abstract: This paper characterizes the optimal insurance contract in an environment where an informed agent can misrepresent the state of the world to a principal who cannot credibly commit to an auditing strategy. Because the principal cannot commit, the optimal strategy of the agent is not to tell the truth all the time. Assuming that there are T > 1 possible losses, and that the agent cannot fake an accident (he is constrained only to misreport the size of the loss when a loss occurs), the optimal contract is such that higher losses are over-compensated while lower losses are on average under-compensated. The amount by which higher losses are over-compensated decreases as the loss increases. The optimal contract may then be represented as a simple combination of a deductible, a lump-sum payment and a coinsurance provision.

32 citations


Journal ArticleDOI
TL;DR: In this article, a probabilistic approach to the problem of assigning k indivisible identical objects to a set of agents with single-peaked preferences is considered, and it is shown that no envy cannot be replaced by anonymity.
Abstract: We consider a probabilistic approach to the problem of assigning k indivisible identical objects to a set of agents with single-peaked preferences. Using the ordinal extension of preferences we characterize the class of uniform probabilistic rules by Pareto efficiency, strategy-proofness, and no-envy. We also show that in this characterization no-envy cannot be replaced by anonymity. When agents are strictly risk averse von Neumann-Morgenstern utility maximizer, then we reduce the problem of assigning k identical objects to a problem of allocating the amount k of an infinitely divisible commodity.

25 citations


Journal ArticleDOI
TL;DR: In this article, a bargaining game among players connected by a network, where successively potential potential partners negotiate over terms of a project, is examined, and the expected payoffs for players are derived as a function of the network.
Abstract: . We examine a bargaining game among players connected by a network, where successively potential partners negotiate over terms of a project. For any network structure and ordering of selection of bargaining partners, there is a unique subgame perfect equilibrium outcome which coincides with the standard Rubinstein split. Based on this, we derive expected payoffs for players as a function of the network. We the characterize the pairwise stable and efficient bargaining networks. These two sets do not always coincide and in many situations pairwise stable networks are over-connected.

22 citations


Journal ArticleDOI
TL;DR: In this article, the authors characterise the interplay between firms' decision in product development undertaken through a research joing venture and the nature of their ensuing market behaviour, and prove that the more the firms' products are distinct and thus less substitutable, the easier their collusion is to sustain in the marketing super game, either in prices (Bertrand) or in quantities (Cournot).
Abstract: We characterise the interplay between firms' decision in product development undertaken through a research joing venture (RJV), and the nature of their ensuing market behaviour. Participant firms in an RJV face a trade-off between saving the costs of product innovation by developing similar products to one another, e.g. by sharing most of the basic components of their products, and investing higher initial efforts in product innovation in order to develop more distinct products. We prove that the more the firms' products are distinct and thus less substitutable, the easier their collusion is to sustain in the marketing supergame, either in prices (Bertrand) or in quantities (Cournot). This gives rise to a non-monotone and discontinuous relationship between firms' product portfolio and their intertemporal preferences.

21 citations


Journal ArticleDOI
TL;DR: In this paper, the authors consider a sequential auction where two identical goods are sold sequentially to N players who are interested in both objects and show that there exists an equilibrium of the sequential game in pure and monotone strategies.
Abstract: Landsberger et al. have studied a sealed bid first price auction with two players in which the ranking of the valuations is known. They argue that such a situation can arise in a sequential auction where only the name of the winner is revealed. In this paper we consider sequential auctions where two identical goods are sold sequentially to N players who are interested in both objects. In sealed bid auctions, no information is a priori revealed by the mechanism, but the seller can in principle reveal whatever he wants. We restrict our attention to the case where only the name of the winner is revealed to be in the context of Landsberger et al. for the second auction. The aim of the paper is to compare such a sequential auction with a simultaneous auction where both goods are sold as a bundle or equivalently with a sequential auction where no information is revealed. We first show that there exists an equilibrium of the sequential game in pure and monotone strategies. Then, the comparison of the seller's expected revenue in the two cases allows us to conclude that contrary to Landsberger et al.'s predictions, the seller can not use the information to increase his revenue. This result is obtained using simulations for a large class of distribution functions. The seller must not reveal the name of the winner between the two auctions and instead sell both goods using a simultaneous auction.

20 citations


Journal ArticleDOI
TL;DR: In this paper, the Clarke-Groves mechanism is adapted to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market.
Abstract: . This article studies the design of optimal mechanisms to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market. We adapt the Clarke–Groves mechanism, characterize the optimal mechanism that maximizes the weighted sum of expected social surplus and expected tax revenue, and show that these mechanisms avoid budget deficits and prevent excessive entry.

Journal ArticleDOI
TL;DR: In this article, an alternative proof of the Gibbard's random dictatorship theorem with ex-post Pareto optimality is presented, which is direct and follows closely the original Gibbard approach.
Abstract: We present an alternative proof of the Gibbard's random dictatorship theorem with ex post Pareto optimality. Gibbard(1977) showed that when the num- ber of alternatives is finite and larger than two, and individual preferences are linear (strict), a strategy-proof decision scheme (a probabilistic analogue of a social choice function or a voting rule) is a convex combination of decision schemes which are, in his terms, either unilateral or duple. As a corollary of this theorem (credited to H. Sonnenschein) he showed that a decision scheme which is strategy-proof and satisfies ex post Pareto optimality is randomly dictatorial. We call this corollary the Gibbard's random dictatorship theorem. We present a proof of this theorem which is direct and follows closely the original Gibbard's approach. Focusing attention to the case with ex post Pareto optimality our proof is more simple and intuitive than the original Gibbard's proof. JEL classification: D71, D72

Journal ArticleDOI
TL;DR: In this article, six classes of weak fuzzy transitivity have been considered in a real decision problem: 200 students were asked twice about their future graduation trip, first taking into account only destination, and second considering prices, too.
Abstract: In this paper 6 classes of weak fuzzy transitivity have been considered in a real decision problem: 200 students were asked twice about their future graduation trip, first taking into account only destination, and second considering prices, too. Each group of students compared trips by pairs, where intensities of preference could be shown by 4 linguistic labels represented by numbers from 0 to 1. The results have been analyzed in order to determine the influence of the numbers of alternatives and inherent attributes of the alternatives (destination and money) on the fulfillment of the 6 properties of fuzzy transitivity.

Journal ArticleDOI
TL;DR: In this paper, an experimental investigation on two mechanisms for the so-called King Solomon Dilemma, where one of them fails to implement the social choice rule dynamically, is presented.
Abstract: This paper reports an experimental investigation on two mechanisms for the so-called King Solomon Dilemma, where one of them fails to implement the social choice rule dynamically. We compare the two mechanisms in terms of their welfare, incentive and learning properties.

Journal ArticleDOI
TL;DR: In this paper, the authors present a set of axioms guaranteeing that, in exchange economies with or without indivisible goods, the set of Nash, Strong and active Walrasian Equilibria all coincide in the framework of market games.
Abstract: In this paper we present a set of axioms guaranteeing that, in exchange economies with or without indivisible goods, the set of Nash, Strong and active Walrasian Equilibria all coincide in the framework of market games.

Journal ArticleDOI
TL;DR: The extent to which majority rule is invulnerable to manipulation by individuals and coalitions, even whenmajority rule is used to select more than one alternative is explored.
Abstract: . This paper explores the extent to which majority rule is invulnerable to manipulation by individuals and coalitions, even when majority rule is used to select more than one alternative. The resulting rule may or may not be strategy-proof, depending on the size of the coalitions that can form, and on the nature of the individual preferences over sets of alternatives. No individual can manipulate with respect to a wide family of preferences over sets. The only restriction on the domain of true and revealed individual preferences is that the selection rule is always well defined.

Journal ArticleDOI
TL;DR: In this article, the authors extend the Pareto efficiency concept to include various modes of organization of social institutions: the costs and benefits of these organizations are expressed in the trades they facilitate.
Abstract: We model an economy with social institutions that facilitate trade and induce three types of costs: establishment costs, access costs, and use costs. Use costs are specific transaction costs related to the use of these trade institutions. We assume that a trade institution is economically completely determined by the costs it imposes and by the effects on the trades it facilitates. We extend the Pareto efficiency concept to include various modes of organization of social institutions: the costs and benefits of these organizations are expressed in the trades they facilitate. Within this setting we discuss a valuation equilibrium concept, in which all agents use a common conjectural price system that assigns to every trade institution the price vector that would prevail under it. This feature of the equilibrium is important in securing the second welfare theorem, and is new to the analysis of economies with costly trade. Since the use costs can be nonlinear, there are non-convexities that prevent the second welfare theorem from obtaining in a finite economy, but we show it for large economies.

Journal ArticleDOI
TL;DR: In this article, the authors characterize the entire class of mechanisms for the provision of the public good and its cost that are Pareto optimal among the set of strategy-proof, voluntarily-participatory, budget balancing, non-bossy, and replacement-monotonic mechanisms.
Abstract: An economy can produce and consume a fixed-cost excludable public good only if its members fully fund the cost of the good In this paper, we characterize the entire class of mechanisms for the provision of the public good and its cost that are Pareto optimal among the set of strategy-proof, voluntarily-participatory, budget-balancing, non-bossy, and replacement-monotonic mechanisms We demonstrate that this class of mechanisms is quite small and can be characterized as simple step-price mechanisms

Journal Article
TL;DR: In this paper, the Clarke-Groves mechanism is adapted to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market.
Abstract: This article studies the design of optimal mechanisms to regulate entry in natural oligopoly markets, assuming the regulator is unable to control the behavior of firms once they are in the market. We adapt the Clarke–Groves mechanism, characterize the optimal mechanism that maximizes the weighted sum of expected social surplus and expected tax revenue, and show that these mechanisms avoid budget deficits and prevent excessive entry. JEL classification: D43, D44, D45, H21, L13

Journal ArticleDOI
TL;DR: In this article, the authors consider a model of an oligopolistic market with heterogeneous firms and products where neither the cost nor the demand functions are common knowledge and each firm only has some vague ideas about the price strategies adopted by its competitors which is modelled by a fuzzy set.
Abstract: We consider a model of an oligopolistic market with heterogeneous firms and products where neither the cost nor the demand functions are common knowledge. Instead, each firm only has some vague ideas about the price strategies adopted by its competitors which is modelled by a fuzzy set. In analogy to the notion of an "equilibrium of actions and beliefs" we define and characterize a generalized Nash-equilibrium and show its existence under general conditions. Furthermore, the impact of the fuzzy information on the equilibrium outcome is analyzed by means of a comparative static analysis within a particular model framework.

Journal ArticleDOI
TL;DR: The authors characterizes dictatorial voting operators by means of three conditions (the nonemptiness condition A1, the independence condition A2 and the resoluteness condition A3) motivated by the idea of transferring to the social choice properties common to all the voters' choices.
Abstract: Voting operators map n-tuples of subsets of a given set X of candidates (the voters’ choices) into subsets of X (the social choice). This paper characterizes dictatorial voting operators by means of three conditions (the non-emptiness condition A1, the independence condition A2 and the resoluteness condition A3) motivated by the idea of transferring to the social choice properties common to all the voters’ choices. The result is used to refine Lahiri’s (2001) characterization and to derive dictatorial results in other three types of aggregation problems, in which choice functions are transformed into choice functions, binary relations into choices and binary relations into binary relations.

Journal ArticleDOI
TL;DR: In this paper, the authors discuss large but finite linear market games which are represented as minima of finitely many measures and show that the shape of the generic vNM-Stable Set suggests cartelization of the market.
Abstract: We discuss large but finite linear market games which are represented as minima of finitely many measures. These games describe markets in which the agents decompose into finitely many disjoint groups each of which holds a corner of the market. Most solution concepts like the core, the Shapley value, or the Walrasian equilibrium tend to favor the short side of such market excessively. That is, in the replicated limit or in the continuum version, the short side is awarded all the possible profits even though cooperation within the grand coalition is required. We show that vNM-Stable Sets differ markedly. For large but finite player sets we exhibit vNM solutions that assign wealth to the long side of the market. It turns out that the shape of the generic vNM-Stable Set suggests cartelization of the market.

Journal ArticleDOI
TL;DR: Barbera and Sonnenschein this paper showed that their power function becomes additive if they replace the Paretian condition by nonimposition and monotonicity, and sharpened the analogy to Arrow's theorem.
Abstract: We show that Barbera and Sonnenschein’s (1978) power function becomes additive if we replace the Paretian condition by nonimposition and monotonicity. Since these conditions are very much in the spirit of Arrow (1951), our result sharpens the analogy to Arrow’s theorem.

Journal ArticleDOI
TL;DR: In this article, the authors show that the questions "Who consults investment analysts?" and "Who goes to the "El Farol" bar in Santa Fe?" are similar and that investors use a mixed optimal strategy.
Abstract: This paper shows that the questions: “Who consults investment analysts?” and “Who goes to the “El Farol” bar in Santa Fe?” are similar. Thus, investors use a mixed optimal strategy. The demand for consulting services is also characterized.

Journal ArticleDOI
TL;DR: This paper formalizes the interplay between expected voting behavior and strategic positioning behavior of candidates as a common agency problem in which the candidates compete for voters via the issues they choose and the positions they take and compute the farsightedly stable sets for several examples of political situations games.
Abstract: We formalize the interplay between expected voting behavior and strategic positioning behavior of candidates as a common agency problem in which the candidates (i.e., the principals) compete for voters (i.e., agents) via the issues they choose and the positions they take. A political situation is defined as a feasible combination of candidate positions and expected political payoffs to the candidates. Taking this approach, we are led naturally to a particular formalization of the candidates' positioning game, called a political situation game. Within the context of this game, we define the notion of farsighted stability (introduced in an abstract setting by Chwe 1994) and apply Chwe's result to obtain existence of farsightedly stable outcomes. We compute the farsightedly stable sets for several examples of political situations games, with outcomes that conform to real-world observations.