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  5. Auctions, Contracts, and Information
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Auctions, Contracts, and Information

Paper Session

Sunday, Jan. 7, 2024 1:00 PM - 3:00 PM (CST)

Grand Hyatt, Travis A
Hosted By: Econometric Society
  • Chair: Shiran Rachmilevitch, University of Haifa

Random Double Auction: A Robust Bilateral Trading Mechanism

Wanchang Zhang
,
University of California-San Diego

Abstract

I construct a novel random double auction as a robust bilateral trading
mechanism for a profit-maximizing intermediary who facilitates trade between a buyer and a
seller. It works as follows. The intermediary publicly commits to charging a fixed commission
fee and randomly drawing a spread from a uniform distribution. Then the buyer submits a bid
price and the seller submits an ask price simultaneously. If the difference between the bid price and the ask price is greater than the realized spread, then the asset is transacted at the midpoint price, and each pays the intermediary half of the fixed commission fee. Otherwise, no trade takes place, and no one pays or receives anything. I show that the random double auction is a dominant-strategy mechanism, always gives
a positive worst-case expected profit, and maximizes the worst-case expected profit
across all dominant-strategy mechanisms.

Credible Contracts: Joint Design of Evaluations and Payments

Yangfan Zhou
,
Columbia University

Abstract

This paper studies the credible design of contracts when the principal is lack of commitment power. The principal jointly designs the evaluation system and the payment scheme, subjective to evaluation costs. With limited commitment, the principal can deviate from her promised evaluation design and misreport the evaluation outcome, as long as the agent is not able to detect her misbehavior using his private data. A contract is called credible if the principal does not want to deviate. In credible contracts, the principal gives lower payments when she knows more about the agent’s private data and she designs the evaluation system to optimally learn what data the agent has. When the agent’s private data can be ranked according to their informativeness about effort, then in optimal credible contracts, the principal designs the evaluation system to only look for hard evidence on shirking-indicative data, and credibly punishes the agent upon finding of such evidence. When shirking-indicative data is too rare on the path, the principal instead prefers to use perfectly informative evaluations to establish credibility and provide incentives.

Auctions with a Multi-Member Bidder

Shiran Rachmilevitch
,
University of Haifa

Abstract

This paper considers a second-price auction in which one bidder is a team, consisting of n individuals for whom the auctioned item is a public good: if the team wins it, they all enjoy it. Team members need to agree on a bid, and on splitting the burden of payment if they win. These decisions are taken through a mechanism, to which team members send reports. For a general class
of mechanisms, the game has an equilibrium. A specific version of the model is solved, for which the equilibrium is unique. This equilibrium, which generalizes the weak dominance equilibrium of the ordinary second-price auction, exhibits intuitive properties. When n is large, the equilibrium payoff is about 1/n-th of the first-best payoff (what a team member could have achieved if team members were able to commit to truthfully reveal their information). First-price and all-pay auctions are also briefly studied. It is shown that there is no equivalence between the formats in the present framework.
JEL Classifications
  • C1 - Econometric and Statistical Methods and Methodology: General