MECHANISM DESIGN & VOTING
The Expected Externality Mechanism in a Level-k Environment (International Journal of Game Theory, 2017)
- Mechanism design theory relies on the concept of Nash equilibrium. However, studies of experimental games suggest that Nash equilibria are rarely played and provide evidence that subjects may be thinking only a finite number of iterations. Our purpose is to find out whether the expected externality mechanism (D'Aspremont, Gerard-Varet, 1979) retains its properties under finite-iterations thinking. While efficient implementation fails under certain conditions, our results provide a vindication of the mechanism in the convex quasi-linear environment with finitely rational agents.
- Keywords: Expected Externality Mechanism, Level-k Model, Bounded Rationality.
- This paper accounts for the effects of the master lever (ML), aka the straight-ticket voting option, on elected US senators from 1960 till 2012. The ML, still present in some states, allows voters to select a specific party for all elections listed on a ballot, as opposed to filling out each office individually. Introducing it leads to an increase in the number of partisan votes, and thus changes the groups of voters targeted by parties and shifts the positions of senatorial candidates. Theoretically, we examine this change in tradeoffs by building a model of multidimensional pre-election competition. Empirically, we identify the effect of the ML by using a triple difference estimator to account for selection into treatment. Controlling for party trends, we find that it leads to a right-wing shift of senatorial positions, an effect that is larger for the Republican party. We use the theory to explain how the political climate, as observed by the data, implies the specific result.
- Keywords: Ballot Design, Elections, Political Positions, U.S. Senate.
Estimate Based Dynamic Implementation [Max Planck Institute Preprint, 2014]
- This paper introduces a virtually efficient mechanism in a setting with sequentially arriving agents who hold informative signals about future types. To reveal the information the principal organizes betting on future type reports. An agent’s betting reward depends on how accurately the prior updated on his report predicts the type reports observed in the following period. The mechanism satisfies participation constraints and generates no deficit after any reported history.
- Keywords: Dynamic Mechanisms, Scoring Rule, Bayesian Learning, Conjugate Priors.
Bidder Collusion and the Auction with Target Bids [Max Planck Institute Preprint, 2014]
- I study collusion in one-shot auctions, where a buyer can bribe his competitors into lowering their bids. I modify the single-unit Vickrey auction to incite deviations from the designated-winner scenario and thus undermine collusion. The construction of mechanism does not require the knowledge of the colluding bidders’ identities or distributions of valuations, in which sense it is entirely detail-free.
- Keywords: Bidder Collusion, Detail-Free Auctions, Vickrey Auction.
Precluding Collusion in Auctions [Hausdorff Research Institute for Mathematics Preprint, 2010]
- Collusive bidding in auctions jeopardizes the revenue to the seller. This paper describes a way to preclude strong and tacit subgroup collusion in a non-repeated auction environment, when cartels can commit to transfer exchange ex post, but not to reallocation. The robustness is attained by an optional assignment rule in a sealed-bid Vickrey auction, which is not applied in equilibrium, but serves as a credible threat to any collusive agreement aimed at generating an extra surplus. In the absence of benefits to collusion the backward-inducing bidders will not engage into collusive negotiations.
- Keywords: Acceptable Correlated Equilibrium, Collusion, Detail-Free Auctions.
MARKETS & EXPERIMENTS
Information Aggregation through Stock Prices and the Cost of Debt (Journal of Institutional and Theoretical Economics, 2018) [Max Planck institute Preprint, 2013], with Wolfgang Kuhle
- This paper studies a firm’s optimal capital structure in an environment, where the firm’s stock price serves as a public signal for its credit worthiness. In equilibrium, equity investors choose how much information to acquire privately, which induces a positive relation between the amount of equity issued and the stock price signal’s precision. Thus, through its capital structure, the firm can internalize the informational externality that stock prices exert on bond yields. Firms with a strong fundamental therefore issue more equity and less debt than they would if the informational spill-over did not exist.
- Keywords: Information Aggregation, Capital Structure, Sequential Markets, Market Depth.
- We study the division of trade surplus in a competitive market environment by conducting a natural field experiment on German eBay. Acting as a seller, we offer Amazon gift cards with face values of up to 500 Euro. Randomly arriving buyers, the subjects of our experiment, make price offers according to eBay rules. Using a novel decomposition method, we infer offered shares of trade surplus and find that the average share proposed to the seller amounts to 29%. Additionally, we document: (i) insignificant effects of stake size; (ii) poor use of strategically relevant public information; and (iii) behavioural differences between East and West German subjects.
- Keywords: Field Experiment, Ultimatum Game, Surplus Division, Bargaining, Internet Trade, eBay.
- Individuals often have to decide to which degree of risk they want to expose others, or how much risk to accept if their choice has an externality on third parties. One typical application is a household. We exploit the opportunity to run an experiment in the German Socio-Economic Panel with two members from 494 households. Participants have a good estimate of each other’s risk preferences, even if not explicitly informed. They do not simply match this preference when deciding on behalf of the other household member, but shy away from exposing others to risk. We model the situation, and we find four distinct types of individuals, and two distinct types of households.
- Keywords: SOEP-IS, Risk Attitudes, Aggregation of Preferences, Household Decision Making.