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Market Design

Paper Session

Friday, Jan. 3, 2020 10:15 AM - 12:15 PM (PDT)

Marriott Marquis, Del Mar
Hosted By: Econometric Society
  • Chair: Sergei Severinov, University of British Columbia

Market Design and Walrasian Equilibrium

Faruk Gul
,
Princeton University
Wolfgang Pesendorfer
,
Princeton University
Mu Zhang
,
Princeton University

Abstract

We establish the existence of Walrasian equilibrium for economies with many discrete goods and possibly one divisible good. Our goal is not only to study Walrasian equilibria in new settings but also to facilitate the use of market mechanisms in resource allocation problems such as school choice or course selection. We consider all economies with quasilinear gross substitutes preferences. We allow agents to have limited quantities of the divisible good (limited transfers economies). We also consider economies without a divisible good nontransferable utility economies). We show the existence and efficiency of Walrasian equilibrium in limited transfers economies and the existence and efficiency of strong (Walrasian) equilibrium in nontransferable utility economies. Finally, we show that various constraints on minimum and maximum levels of consumption and aggregate constraints of the kind that are relevant for school choice or course selection problems can be accommodated by either incorporating these constraints into individual preferences or by incorporating a suitable production technology into nontransferable utility economies.

Repeat Applications in College Admissions

Yeon-Koo Che
,
Columbia University
Jinwoo Kim
,
Seoul National University
Youngwoo Koh
,
Hanyang University

Abstract

We study the application decision of college applicants and its implications when they are allowed to reapply upon the failure to get admitted in the original application. The repeat applications entail a novel trade-off: it gives high-ability students with bad luck a chance to redraw their scores and get admitted to the colleges well-matched to their abilities; meanwhile, it also intensifies the competition for good schools and tends to make more students repeat apply and incur the corresponding cost. We show that there is an excessive reapplication and this is amplifieded ty the reapplication possibility. We also show that social welfare can be increased by reducing the pool of reapplicants or by reducing the quality gap among colleges.

Entry-Proofness and Market Breakdown under Adverse Selection

Thomas Mariotti
,
Toulouse School of Economics

Abstract

This paper develops a unified approach to entry-proofness under adverse selection. We first provide a necessary and sufficient condition for entry on an inactive market to be unprofitable. We then study active markets, for which we characterize the unique budget-balanced market tariff preventing entry by a seller offering additional contracts. These results yield sharp predictions for competitive outcomes of nonexclusive markets, and suggest a new test for the presence of asymmetric information in insurance.

Who Wants to Be an Auctioneer?

Sergei Severinov
,
University of British Columbia
Gabor Virag
,
University of Toronto

Abstract

We consider a directed search model with heterogeneous buyers and sellers, each of whom can decide whether to visit a trader on the other side of the market or to post a mechanism himself. We show that the equilibrium is constrained efficient. Inefficient traders (low-value buyers and high-cost sellers) choose to visit with probability 1, while efficient traders randomize between posting and visiting. The welfare gains from allowing both sides to choose between posting and visiting can be quite substantial. This suggests that decentralized marketplaces should allow their participating buyers and sellers to self-select into making or receiving offers based on their costs and use values.
JEL Classifications
  • D8 - Information, Knowledge, and Uncertainty
  • D5 - General Equilibrium and Disequilibrium