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Full-Text Articles in Social and Behavioral Sciences

Efficient Bilateral Trade With Interdependent Values: The Use Of Two-Stage Mechanisms, Takashi Kunimoto, Cuiling Zhang Jul 2024

Efficient Bilateral Trade With Interdependent Values: The Use Of Two-Stage Mechanisms, Takashi Kunimoto, Cuiling Zhang

Research Collection School Of Economics

As efficient, voluntary bilateral trades are generally not incentive compatible in an interdependent-value environment (Fieseler, Kittsteiner, Moldovanu (2003) and Gresik (1991)), we seek for more positive results by employing two-stage mechanisms (Mezzetti (2004)). We say that a two-stage mechanism satisfies incentive compatibility if the truth-telling in both stages constitutes an equilibrium strategy.First, we show by means of a stylized example that the generalized two-stage Groves mechanism never guarantees voluntary trade, while it satisfies efficiency and incentive compatibility. In a general environment, we next propose Assumption 1 under which there exists a two-stage incentive compatible mechanism implementing an efficient, voluntary trade. …


Rank-Guaranteed Auctions, Wei He, Jiangtao Li, Weijie Zhong Jul 2024

Rank-Guaranteed Auctions, Wei He, Jiangtao Li, Weijie Zhong

Research Collection School Of Economics

We propose a combinatorial ascending auction that is “approximately” optimal, requiring minimal rationality to achieve this level of optimality, and is robust to strategic and distributional uncertainties. Specifically, the auction is rankguaranteed, meaning that for any menu M and any valuation profile, the ex-post revenue is guaranteed to be at least as high as the highest revenue achievable from feasible allocations, taking the (|M| + 1)th-highest valuation for each bundle as the price. Our analysis highlights a crucial aspect of combinatorial auction design, namely, the design of menus. We provide simple and sufficient menus in various settings.


Robust Implementation In Rationalizable Strategies In General Mechanisms, Takashi Kunimoto, Rene Saran Mar 2024

Robust Implementation In Rationalizable Strategies In General Mechanisms, Takashi Kunimoto, Rene Saran

Research Collection School Of Economics

A social choice function (SCF) is robustly implementable in rationalizable strate-gies if every rationalizable strategy profile on every type space results in outcomes consistent with it. First, we establish an equivalence between robust implementation in rationalizable strategies and “weak rationalizable implementation”. Second, using the equivalence result, we identify weak robust monotonicity as a necessary and al-most sufficient condition for robust implementation in rationalizable strategies. This exhibits a contrast with robust implementation in interim equilibria, i.e., every equilib-rium on every type space achieves outcomes consistent with the SCF. Bergemann and Morris (2011) show that strict robust monotonicity is a necessary and …


The Interplay Of Interdependence And Correlation In Bilateral Trade, Takashi Kunimoto, Cuiling Zhang Mar 2024

The Interplay Of Interdependence And Correlation In Bilateral Trade, Takashi Kunimoto, Cuiling Zhang

Research Collection School Of Economics

Crémer and McLean (1988) show that the seller can extract full surplus almost always by an incentive compatible, individually rational mechanism in a single-unit auction model with a finite type space in which agents' beliefs are correlated and their valuations can be interdependent. We first show that this paradoxically positive result can be extended to a model of bilateral trades. To make it more realistic, we investigate when ex-post efficiency and ex-post budget balance in bilateral trades can also be achieved by an incentive compatible, individually rational mechanism. We identify a necessary condition for the existence of such mechanisms and …


Interim Regret Minimization, Wei He, Jiangtao Li, Kexin Wang Mar 2024

Interim Regret Minimization, Wei He, Jiangtao Li, Kexin Wang

Research Collection School Of Economics

We consider a robust version of monopoly pricing when the seller only knows the bound on valuations and the mean of the distribution of the buyer’s value. The seller seeks to minimize interim regret, the forgone expected revenue due to not knowing the distribution of the buyer’s value. The optimal pricing policy randomizes over a range of prices; the support of the pricing policy is bounded away from zero.


Compellingness In Nash Implementation, Shurojit Chatterji, Takashi Kunimoto, Paulo Daniel Salles Ramos Feb 2024

Compellingness In Nash Implementation, Shurojit Chatterji, Takashi Kunimoto, Paulo Daniel Salles Ramos

Research Collection School Of Economics

A social choice function (SCF) is said to be Nash implementable if there exists a mechanism in which every Nash equilibrium outcome coincides with that specified by the SCF. The main objective of this paper is to assess the impact of considering mixed strategy equilibria in Nash implementation. To do this, we focus on environments with two agents and restrict attention to finite mechanisms. We call a mixed strategy equilibrium “compelling” if its outcome Pareto dominates any pure strategy equilibrium outcome. We show that if the finite environment and the SCF to be implemented jointly satisfy what we call Condition …


High-Dimensional Iv Cointegration Estimation And Inference, Peter C. B. Phillips, Igor L. Kheifets Jan 2024

High-Dimensional Iv Cointegration Estimation And Inference, Peter C. B. Phillips, Igor L. Kheifets

Research Collection School Of Economics

A semiparametric triangular systems approach shows how multicointegrating linkages occur naturally in an I(1) cointegrated regression model when the long run error variance matrix in the system is singular. Under such singularity, cointegrated I(1) systems embody a multicointegrated structure that makes them useful in many empirical settings. Earlier work shows that such systems may be analyzed and estimated without appealing to the associated I(2) system but with suboptimal convergence rates and potential asymptotic bias. The present paper develops a robust approach to estimation and inference of such systems using high dimensional IV methods that have appealing asymptotic properties like those …


Equal Predictive Ability Tests Based On Panel Data With Applications To Oecd And Imf Forecasts, Oguzhan Akgun, Alain Pirotte, Giovanni Urga, Zhenlin Yang Jan 2024

Equal Predictive Ability Tests Based On Panel Data With Applications To Oecd And Imf Forecasts, Oguzhan Akgun, Alain Pirotte, Giovanni Urga, Zhenlin Yang

Research Collection School Of Economics

We propose two types of equal predictive ability (EPA) tests with panels to compare the predictions made by two forecasters. The first type, S-statistics, focuses on the overall EPA hypothesis, which states that the EPA holds, on average, over all panel units and over time. The second type, C-statistics, focuses on the clustered EPA hypothesis where the EPA holds jointly for a fixed number of clusters of panel units. The asymptotic properties of the proposed tests are evaluated under weak and strong cross-sectional dependence. An extensive Monte Carlo simulation shows that the proposed tests have very good finite sample properties, …


Obfuscation And Rational Inattention, Aljoscha Janssen, Johannes Kasinger Nov 2023

Obfuscation And Rational Inattention, Aljoscha Janssen, Johannes Kasinger

Research Collection School Of Economics

We study the behavior of duopolistic firms that can obfuscate their prices before competing on price. Obfuscation affects the rational inattentive consumers' optimal information strategy, which determines the probabilistic demand. Our model advances related models by allowing consumers to update their unrestricted prior beliefs with an informative signal of any form. We show that the game may result in an obfuscation equilibrium with high prices or a transparency equilibrium with low prices and no obfuscation, providing an argument for market regulation. Obfuscation equilibria cease to exist for low information costs and if one firm seems a priori considerably more attractive.


Decomposability And Strategy-Proofness In Multidimensional Models, Shurojit Chatterji, Huaxia Zeng Nov 2023

Decomposability And Strategy-Proofness In Multidimensional Models, Shurojit Chatterji, Huaxia Zeng

Research Collection School Of Economics

We introduce the notion of a multidimensional hybrid preference domain on a (finite) set of alternatives that is a Cartesian product of finitely many components. We demonstrate that in a model of public goods provision, multidimensional hybrid preferences arise naturally through assembling marginal preferences under the condition of semi-separability - a weakening of separability. The main result shows that under a suitable “richness” condition, every strategy-proof rule on this domain can be decomposed into component-wise strategy-proof rules, and more importantly every domain of preferences that reconciles decomposability of rules with strategy-proofness must be a multidimensional hybrid domain.


Legal Protection Of Property Rights: A Dynamic Evolution Model, Fali Huang Nov 2023

Legal Protection Of Property Rights: A Dynamic Evolution Model, Fali Huang

Research Collection School Of Economics

This paper presents an analysis of a dynamic evolution model of institutions, focusing on the factors affecting the security of property rights such as coercive capacity, political power, legal quality, and private protection. These factors are endogenously determined in equilibrium, allowing legal quality to serve as a summary indicator of property security. The primary finding of the study indicates that the legal protection of property rights tends to increase over time, driven by a decline in the economy's vulnerability to expropriation, particularly due to the growing importance of commercial and industrial activities relative to agriculture. Furthermore, the coexistence of the …


Connecting The (Dirty) Dots: Current Account Surplus And Polluting Production, Jungho Lee, Shang-Jin Wei, Jianhuan Xu Oct 2023

Connecting The (Dirty) Dots: Current Account Surplus And Polluting Production, Jungho Lee, Shang-Jin Wei, Jianhuan Xu

Research Collection School Of Economics

According to the existing open-economy macroeconomics literature, a current account surplus is associated with a welfare loss only when distortions exist in either savings or investment. We propose a new welfare effect even in the absence of such distortions. In our theory, a trade imbalance − the largest component of a current account imbalance − interacts with a country’s pollution control (“cleanness”) regime to generate welfare effects outside the standard channels. In particular, a trade surplus alters the shipping costs and composition of a country’s imports, producing a welfare loss associated with greater pollution.


Interim Rationalizable Implementation Of Functions, Takashi Kunimoto, Rene Saran, Roberto Serrano Sep 2023

Interim Rationalizable Implementation Of Functions, Takashi Kunimoto, Rene Saran, Roberto Serrano

Research Collection School Of Economics

This paper investigates rationalizable implementation of social choice functions (SCFs) in incomplete information environments. We identify weak interim rationalizable monotonicity (weak IRM) as a novel condition and show it to be a necessary and almost sufficient condition for rationalizable implementation. We show by means of robust examples that interim rationalizable monotonicity (IRM), found in the literature, is strictly stronger than weak IRM and that IRM is not necessary for rationalizable implementation, as had been previously claimed. These examples also demonstrate that Bayesian monotonicity, the key condition for full Bayesian implementation, is not necessary for rationalizable implementation. That is, rationalizable implementation …


Robust Contracting Under Distributional Uncertainty, Jiangtao Li, Kexin Wang Aug 2023

Robust Contracting Under Distributional Uncertainty, Jiangtao Li, Kexin Wang

Research Collection School of Economics

We study the design of contracts when the principal has limited statistical information about the output distributions induced by the agent’s actions. In the baseline model, we consider a principal who only knows the mean of the output distribution for each action, and show that it is optimal for the principal to adopt a monotone affine contract. We further show that the optimality of monotone affine contracts persists even if the principal has access to other information about the output distributions, such as the information that the output distribution induced by each action has full support.


Competing Auctions With Non-Identical Objects, Massimiliano Landi, Domenico Menicucci, Andrey Sarychev May 2023

Competing Auctions With Non-Identical Objects, Massimiliano Landi, Domenico Menicucci, Andrey Sarychev

Research Collection School Of Economics

We study a competition model with two sellers that auction non-identical objects, unlike most of the literature on competing auctions. Each bidder has bidimensional private information, his values for the objects, and chooses the auction in which he participates (if any) after each seller has set a reserve price for her auction. We show that in some cases the duopoly reserve price is greater than the reserve price for a monopolist auctioning a single object; thus, an increase in the number of sellers may make some bidder’s types worse off. In our analysis we first characterize the unique symmetric equilibrium …


Local Dominance, Emiliano Catonini, Jingyi Xue Apr 2023

Local Dominance, Emiliano Catonini, Jingyi Xue

Research Collection School Of Economics

We define notions of dominance between two actions in a dynamic game. Local dominance considers players who have a blurred view of the future and compare the two actions by first focusing on the outcomes that may realize at the current stage. When considering the possibility that the game may continue, they can only check that the local comparison is not overturned under the assumption of "continuing in the same way" after the two actions (in a newly defined sense). Despite the lack of forward planning, local dominance solves dynamic mechanisms that were found easy to play and implements social …


Continuous Implementation With Payoff Knowledge, Yi-Chun Chen, Takashi Kunimoto, Yifei Sun Apr 2023

Continuous Implementation With Payoff Knowledge, Yi-Chun Chen, Takashi Kunimoto, Yifei Sun

Research Collection School Of Economics

The literature on robust mechanism design assumes players' knowledge about a fixed payoff environment and investigates global robustness of optimal mechanisms to large changes in the information structure. Acknowledging global robustness as a demanding requirement, we propose continuous implementation as a notion of local robustness. Keeping the assumption of payoff knowledge, we say that an SCF is continuously implementable if there exists a mechanism which yields the outcome close to the desired one for all types close to the planner's initial model. We show that when a generic correlation condition is imposed on the class of interdependent-value environments, any (interim) …


On The Welfare Role Of Redundant Assets With Heterogenous Forecasts, Shurojit Chatterji, Atsushi Kajii Mar 2023

On The Welfare Role Of Redundant Assets With Heterogenous Forecasts, Shurojit Chatterji, Atsushi Kajii

Research Collection School Of Economics

We study a multiperiod model with a nominal bond that matures in one period and identify the set of e¢ cient allocations that can be sustained as Walrasian equilibria with heterogeneous forecasts. We next add a long maturity bond, which under perfect foresight would be a redundant asset, and show that it fundamentally expands the set of e¢ cient allocations that can be sustained as Walrasian equilibria. Indeed all wealth transfers compatible with e¢ ciency can arise endogenously. The key feature driving this conclusion are forecasting errors, which lead to ex post arbitrage opportunities that induce these income transfers.


Getting Dynamic Implementation To Work, Yi-Chun Chen, Richard Holden, Takashi Kunimoto, Yifei Sun, Tom Wilkening Feb 2023

Getting Dynamic Implementation To Work, Yi-Chun Chen, Richard Holden, Takashi Kunimoto, Yifei Sun, Tom Wilkening

Research Collection School Of Economics

We develop a new class of two-stage mechanisms, which fully implement any social choice function under initial rationalizability in complete information environments. We show theoretically that our Simultaneous Report (SR) mechanisms are robust to small amounts of incomplete information about the state of nature. We also highlight the robustness of the mechanisms to a wide variety of reasoning processes and behavioral assumptions. We show experimentally that a SR mechanism performs well in inducing truth-telling in both complete and incomplete information environments and that it can induce efficient investment in a two-sided hold-up problem with ex-ante investment. The SR mechanism also …


Decentralizability Of Efficient Allocations With Heterogenous Forecasts, Shurojit Chatterji, Atsushi Kajii Jan 2023

Decentralizability Of Efficient Allocations With Heterogenous Forecasts, Shurojit Chatterji, Atsushi Kajii

Research Collection School Of Economics

Do price forecasts of rational economic agents need to coincide in perfectly competitive complete markets? To address this question, we define an efficient temporary equilibrium (ETE) within the framework of a two period economy. Although an ETE allocation is intertemporally efficient and is obtained by perfect competition, it can arise without the agents forecasts being completely coordinated on a perfect foresight price. Nevertheless, it entails price forecasts delicately related with each other: we show that regardless of the number of agents, there is a one dimensional set of such Pareto efficient allocations for generic endowments.


A Taxonomy Of Non-Dictatorial Unidimensional Domains, Shurojit Chatterji, Huaxia Zeng Jan 2023

A Taxonomy Of Non-Dictatorial Unidimensional Domains, Shurojit Chatterji, Huaxia Zeng

Research Collection School Of Economics

Non-dictatorial preference domains allow the design of unanimous social choice functions (henceforth, rules) that are non-dictatorial and strategy-proof. On a class of preference domains called unidimensional domains, we show that the unique seconds property characterizes all non-dictatorial domains. Subsequently, we provide an exhaustive classification of all non-dictatorial, unidimensional domains, based on a simple property of two-voter rules called invariance. The domains constituting the classification are semi-single-peaked domains and semi-hybrid domains (introduced here) which are two appropriate weakenings of single-peaked domains and shown to allow strategy-proof rules to depend on non-peak information of voters' preferences; the canonical strategy-proof rules for these …


What Is The Fallacy Of Approximation?, Matthew Hammerton, Sovan Patra Dec 2022

What Is The Fallacy Of Approximation?, Matthew Hammerton, Sovan Patra

Research Collection School of Social Sciences

Many philosophers appeal to the “fallacy of approximation”, or “problem of second best”. However, despite the pervasiveness of such appeals, there has been only a single attempt to provide a systematic account of what the fallacy is. We identify the shortcomings of this account and propose a better one in its place. Our account not only captures all the contexts in which approximation-based reasoning occurs but also systematically explains the several different ways in which it can be in error.


Maskin Meets Abreu And Matsushima, Yi-Chun Chen, Takashi Kunimoto, Yifei Sun, Siyang Xiong Nov 2022

Maskin Meets Abreu And Matsushima, Yi-Chun Chen, Takashi Kunimoto, Yifei Sun, Siyang Xiong

Research Collection School Of Economics

The theory of full implementation has been criticized for using integer/modulo games, which admit no equilibrium (Jackson (1992)). To address the critique, we revisit the classical Nash implementation problem due to Maskin (1977, 1999) but allow for the use of lotteries and monetary transfers as in Abreu and Matsushima (1992, 1994). We unify the two well-established but somewhat orthogonal approaches in full implementation theory. We show that Maskin monotonicity is a necessary and sufficient condition for (exact) mixed-strategy Nash implementation by a finite mechanism. In contrast to previous papers, our approach possesses the following features: finite mechanisms (with no integer …


The Embodiment Controversy: On The Policy Implications Of Vintage Capital Models, Roberto M. Samaniego, Juliana Yu Sun Aug 2022

The Embodiment Controversy: On The Policy Implications Of Vintage Capital Models, Roberto M. Samaniego, Juliana Yu Sun

Research Collection School Of Economics

We explore the long-run impact of policy on the level of economic activity through changes in the vintage distribution of capital, in a model where different vintages coexist in production. Because firms can choose the vintage of capital in which they invest, investment subsidies do not affect the vintage structure of capital. In contrast, vintage-specific taxes or subsidies that target the newest vintages of capital can significantly affect output and welfare in the long run, mainly downward. Transition dynamics are rapid, so that steady-state comparisons give an accurate picture of the welfare impact of vintage tax wedges.


Essays On Social Choice And Implementation Theory, Paulo Daniel Salles Ramos Jun 2022

Essays On Social Choice And Implementation Theory, Paulo Daniel Salles Ramos

Dissertations and Theses Collection (Open Access)

We present here three essays. The first two are about Social Choice Theory and explore under what domain restrictions is possible to obtain a Social Choice Function that is Well Behaved as well as Monotonic, and what other characteristics can be inferred about such functions on that domain. The last essay is about Implementation Theory and explore how to obtain a more compelling form of implementation than pure Nash Equilibrium for finite environments using finite mechanisms.


Weak Identification Of Long Memory With Implications For Inference, Jia Li, Peter C. B. Phillips, Shuping Shi, Jun Yu Jun 2022

Weak Identification Of Long Memory With Implications For Inference, Jia Li, Peter C. B. Phillips, Shuping Shi, Jun Yu

Research Collection School Of Economics

This paper explores weak identification issues arising in commonly used models of economic and financial time series. Two highly popular configurations are shown to be asymptotically observationally equivalent: one with long memory and weak autoregressive dynamics, the other with antipersistent shocks and a near-unit autoregressive root. We develop a data-driven semiparametric and identification-robust approach to inference that reveals such ambiguities and documents the prevalence of weak identification in many realized volatility and trading volume series. The identification-robust empirical evidence generally favors long memory dynamics in volatility and volume, a conclusion that is corroborated using social-media news flow data.


Probabilistic Fixed Ballot Rules And Hybrid Domains, Shurojit Chatterji, Souvik Roy, Soumyarup Sadhukhan, Arunava Sen, Huaxia Zeng May 2022

Probabilistic Fixed Ballot Rules And Hybrid Domains, Shurojit Chatterji, Souvik Roy, Soumyarup Sadhukhan, Arunava Sen, Huaxia Zeng

Research Collection School Of Economics

We study a class of preference domains that satisfies the familiar properties of minimal richness, diversity and no-restoration. We show that a specific preference restriction, hybridness, has been embedded in these domains so that the preferences are single-peaked at the “extremes” and unrestricted in the “middle”. We also study the structure of strategy-proof and unanimous Random Social Choice Functions on these domains. We show them to be special cases of probabilistic fixed ballot rules (introduced by Ehlers, Peters, and Storcken (2002)).


Correlation-Robust Auction Design, Wei He, Jiangtao Li Mar 2022

Correlation-Robust Auction Design, Wei He, Jiangtao Li

Research Collection School Of Economics

We study the design of auctions when the auctioneer has limited statistical information about the joint distribution of the bidders' valuations. More specifically, we consider an auctioneer who has an estimate of the marginal distribution of a generic bidder's valuation but does not have reliable information about the correlation structure. We analyze the performance of mechanisms in terms of the revenue guarantee, that is, the greatest lower bound of revenue across all joint distributions that are consistent with the marginals. A simple auction format, the second-price auction with no reserve price, is shown to be asymptotically optimal, as the number …


Are Simple Mechanisms Optimal When Agents Are Unsophisticated?, Jiangtao Li, Piotr Dworczak Jan 2022

Are Simple Mechanisms Optimal When Agents Are Unsophisticated?, Jiangtao Li, Piotr Dworczak

Research Collection School Of Economics

We study the design of mechanisms involving agents that have limited strategic sophistication. We define a mechanism to be simple if—given the assumed level of strategic sophistication—agents can determine their optimal strategy. We examine whether it is optimal for the mechanism designer who faces strategically unsophisticated agents to offer a simple mechanism. We show that when the designer uses a mechanism that is not simple, while she loses the ability to predict play, she may nevertheless be better off no matter how agents resolve their strategic confusion


Mechanism Design By Observant And Informed Planners, Shurojit Chatterji, Arunava Sen Jan 2022

Mechanism Design By Observant And Informed Planners, Shurojit Chatterji, Arunava Sen

Research Collection School Of Economics

We study the mechanism design problem where the planner can observe ex-post the first-ranked alternatives or peaks of voter preferences. We contrast this with the design problem where the planner has ex-ante information regarding the peaks of voter preferences.