Theoretical Economics Volume 16, Number 3 (July 2021) is now online

Theoretical Economics
Volume 16, Number 3 (July 2021)
Table of contents


Title: Approval voting without ballot restrictions

Pages: 759-775

Authors: Federica Ceron, Stéphane Gonzalez

Abstract: We axiomatically study voting rules without making any assumption on the ballots that voters are allowed to cast. In this setting, we characterize the family of ``endorsement rules", which includes approval voting and the plurality rule, via the imposition of three normative conditions. The first condition is the well-known social-theoretic principle of consistency; the second one, unbiasedness, roughly requires social outcomes not to be biased towards particular candidates or voters; the last one, dubbed no single-voter overrides, demands that the addition of a voter to an electorate cannot radically change the social outcome. Building on this result, we provide the first axiomatic characterization of approval voting without the approval balloting assumption. The informational basis of approval voting, as well as its aggregative rationale, are jointly derived from a set of conditions that can be defined on most of the ballot spaces studied in the literature.

Keywords: Approval voting, balloting procedures, informational basis, endorsement

JEL classification: D71


Title: Simple bets to elicit private signals

Pages: 777-797

Authors: Aurelien Baillon, Yan Xu

Abstract: This paper introduces two simple betting mechanisms, Top-Flop and Threshold betting, to elicit unverifiable information from crowds. Agents are offered bets on the rating of an item about which they received a private signal versus that of a random item. We characterize conditions for the chosen bet to reveal the agents' private signal even if the underlying ratings are biased.  We further provide micro-economic foundations of the ratings, which are endogenously determined by the actions of other agents in a game setting. Our mechanisms relax standard assumptions of the literature, such as common prior, and homogeneous and risk neutral agents.

Keywords: Bets, private signals, Bayesian game, elicitation

JEL classification: D8, C9


Title: Revenue from matching platforms

Pages: 799-824

Authors: Philip Marx, James Schummer

Abstract: We consider the pricing problem of a platform that matches heterogeneous agents using match-contingent fees. Absent prices, agents on the short side of such markets capture relatively greater surplus than those on the long side (Ashlagi et al., 2017).  Nevertheless we show that the platform need not bias its price allocation toward either side.  With independently drawn preferences, optimal price allocation decisions are independent of market size or imbalance; furthermore, changes in the optimal price level move both sides' prices in the same direction.  In contrast, preference homogeneity biases price allocation in a direction that depends on the form of homogeneity; furthermore, changes in market imbalance move both sides' prices in opposite directions.  These effects arise due to the exclusivity of matchings in two-sided market settings.

Keywords: Pricing, matching, platforms

JEL classification: D40, C78


Title: Cooperative strategic games

Pages: 825-851

Authors: Elon Kohlberg, Abraham Neyman

Abstract: We present a solution concept, called the value, for n-person strategic games with complete or incomplete information (Bayesian games).
The value provides an a priori evaluation of the economic worth of the position of each player; it reflects the players' strategic possibilities, including their ability to selectively share information and to make threats against one another.  In the special case of games with complete information the value coincides with a solution developed by Shapley, Nash, and Harsanyi, and in two-person Bayesian games it coincides with a solution developed by Kalai and Kalai.  Applications of the value in economics have been rare, at least in part because the existing definition (for $n >2$) consists of an ad hoc scheme that does not easily lend itself to computation. We present a simple formula for computing the value and prove that it is the unique function, from n-player games to n-dimensional vectors of payoffs, that satisfies a short list of desirable properties (axioms).

Keywords: Strategic games, cooperative games, shapley value, nash variables threats, bribery

JEL classification: C71, C72, C78


Title: When is a monotone function cyclically monotone?

Pages: 853-879

Authors: Alexey I. Kushnir, Lev V. Lokutsievskiy

Abstract: We provide sufficient conditions for a monotone function with a finite set of outcomes to be cyclically monotone. Using these conditions, we show that any monotone function defined on the domain of gross substitutes is cyclically monotone. The result also extends to the domain of generalized gross substitutes and complements.

Keywords: Monotone, cyclically monotone, non-convex domain, gross substitutes, gross substitutes and complements, mechanism design, algebraic topology, homology, nerve theorem

JEL classification: D82


Title: Comparing school choice and college admissions mechanisms by their strategic accessibility

Pages: 881-909

Authors: Somouaoga Bonkoungou, Alexander Nesterov

Abstract: Dozens of school districts and college admissions systems around the world have reformed their admissions rules in recent years. As the main motivation for these reforms the policymakers cited the strategic flaws of the rules in place: students had incentives to game the system. However, after the reforms, almost none of the new rules became strategy-proof. We explain this puzzle. We show that the rules used after the reforms are less prone to gaming according to a criterion called ''strategic accessibility'':
each reform expands the set of schools wherein each student can never get admission by manipulation. We also show that the existing explanation of the puzzle due to Pathak and Sönmez (2013) is incomplete.

Keywords: Market design, school choice, manipulability

JEL classification: C78, D47, D78


Title: Matching with floor constraints

Pages: 911-942

Authors: Sumeyra Akin

Abstract: Floor constraints are a prominent feature of many matching markets, such as medical residency, teacher assignment and military cadet matching. We develop a theory of matching markets under floor constraints.
We introduce a stability notion, which we call floor respecting stability, for markets in which (hard) floor constraints must be respected. A matching is floor respecting stable if there is no coalition of doctors and hospitals that can propose an alternative matching that is feasible and an improvement for its members. Our stability notion imposes the additional condition that a coalition cannot reassign a doctor outside the coalition to another hospital (although she can be fired). This condition is necessary to guarantee the existence of stable matchings. We provide a mechanism that is strategy-proof for doctors and implements a floor respecting stable matching.

Keywords: Matching, floor constraints, efficiency, stability, strategy-proofness

JEL classification: C78,D47,D61,D63


Title: A dominant strategy, double clock auction with estimation-based tatonnement

Pages: 943-978

Authors: Simon Loertscher, Claudio Mezzetti

Abstract: The price mechanism is fundamental to economics but difficult to reconcile with incentive compatibility. We introduce a double clock auction for a homogeneous good market with multi-dimensional private information and multi-unit traders that is deficit-free, ex post individually rational, constrained efficient, and makes sincere bidding a dominant strategy equilibrium. Under a weak dependence and an identifiability condition, our double clock auction is also asymptotically efficient. Asymptotic efficiency is achieved by estimating demand and supply using information from the bids of traders that have dropped out and following a tatonnement process that adjusts the clock prices based on the estimates.

Keywords: Deficit free, dominant strategy mechanisms, double clock auctions, vcg mechanism

JEL classification: C72, D44, D47, D82


Title: Bounds on price setting

Pages: 979-1015

Authors: Narayana R. Kocherlakota

Abstract: I study a class of macroeconomic models in which all firms can costlessly choose any price at each date from an interval (indexed to last period's price level) that includes a positive lower bound. I prove three results that are valid for any such half-closed interval (regardless of how near zero the left endpoint is). First, given any output sequence that is uniformly bounded from above by the moneyless equilibrium output level, that bounded output sequence is an equilibrium outcome for a (possibly time-dependent) specification of monetary and fiscal policy. Second, given any specification of monetary and fiscal policy in which the former is time invariant and the latter is Ricardian (in the sense of Woodford (1995)), there is a sequence of equilibria in which consumption converges to zero on a date-by-date basis. These first two results suggest that standard macroeconomic models without pricing bounds may provide a false degree of confidence in macroeconomic stability and undue faith in the long-run irrelevance of monetary policy. The paper's final result constructs a non-Ricardian nominal framework (in which the long-run growth rate of nominal government liabilities is sufficiently high) that pins down a unique stable real outcome as an equilibrium.

Keywords: Pricing bounds, monetary policy, fiscal policy

JEL classification: E52, E61, E62


Title: Bottleneck links, essential intermediaries and competing paths of diffusion in networks

Pages: 1017-1053

Authors: Mihai Manea

Abstract: We investigate how information goods are priced and diffused over links in a network. A new equivalence relation between nodes captures the effects of network architecture and  locations of  sellers on the division of profits and  characterizes the topology of competing (and potentially
overlapping) diffusion paths. Sellers indirectly appropriate profits over intermediation chains from buyers in their equivalence classes. Links within the same class constitute bottlenecks for information diffusion and confer monopoly power. Links bridging distinct classes are redundant for diffusion and  generate competition among sellers. In dense networks, competition limits the scope of indirect appropriability, and intellectual property rights foster innovation.

Keywords: Networks, diffusion, indirect appropriability, captive markets, intermediation, competition, bottlenecks, redundant links,  information goods, copying, intellectual property

JEL classification: C78, D85, L14, O33


Title: Strict pure strategy Nash equilibria in large finite-player games

Pages: 1055-1093

Authors: Guilherme Carmona, Konrad Podczeck

Abstract: In the context of anonymous games (i.e., games where the payoff of a player is, apart from his/her own action, determined by the distribution of the actions made by the other players) we present a model in which, generically (in a precise sense), finite-player games have strict pure strategy Nash equilibria if the number of agents is large. A key feature of our model is that payoff functions have differentiability properties. A consequence of our existence result is that, in our model, equilibrium distributions of non-atomic games are asymptotically implementable by pure strategy Nash equilibria of large finite-player games.

Keywords: Large games, pure strategy, Nash equilibrium, generic property

JEL classification: C72


Title: Market power and welfare in asymmetric divisible good auctions

Pages: 1095-1137

Authors: Carolina Manzano, Xavier Vives

Abstract: We analyze a divisible good uniform-price auction that features two groups, each with a finite number of identical bidders, who compete in demand schedules. In the linear-quadratic-normal framework, this paper presents conditions under which the unique equilibrium in linear demands exists and derives novel comparative statics results that highlight the interaction between payoff and information parameters with asymmetric groups. We find that the strategic complementarity in the slopes of traders’ demands is reinforced by inference effects from prices, and display the role of payoff and information asymmetries in explaining deadweight losses. Furthermore, price impact and the deadweight loss need not move together and market integration may reduce welfare. The results are consistent with the available empirical evidence.

Keywords: Demand/supply schedule competition, private information, liquidity auctions, Treasury auctions, electricity auctions, market integration

JEL classification: D44, D82, G14, E58


Title: Mechanism design with financially constrained agents and costly verification

Pages: 1139-1194

Authors: Yunan Li

Abstract: A principal distributes an indivisible good to budget-constrained agents when both valuation and budget are agents' private information. The principal can verify an agent's budget at a cost. The welfare-maximizing mechanism can be implemented via a two-stage scheme. First, agents report their budgets, receive cash transfers, and decide whether to enter a lottery over the good. Second, recipients of the good can sell it on a resale market but must pay a sales tax. Low-budget agents receive a higher cash transfer, pay a lower price to enter the lottery, and face a higher sales tax. They are also randomly inspected.

Keywords: Mechanism design, budget constraints, efficiency, costly verification

JEL classification: D45, D61, D82, H42


Publication Date: 
Thursday, July 22, 2021