On the Efficiency of All-Pay Mechanisms

We study the inefficiency of mixed equilibria, expressed as the price of anarchy, of all-pay auctions in three different environments: combinatorial, multi-unit and single-item auctions. First, we consider item-bidding combinatorial auctions where m all-pay auctions run in parallel, one for each good. For fractionally subadditive valuations, we strengthen the upper bound from 2 [Syrgkanis and Tardos STOC'13] to 1.82 by proving some structural properties that characterize the mixed Nash equilibria of the game. Next, we design an all-pay mechanism with a randomized allocation rule for the multi- unit auction. We show that, for bidders with submodular valuations, the mechanism admits a unique, 75% efficient, pure Nash equilibrium. The efficiency of this mechanism outperforms all the known bounds on the price of anarchy of mechanisms used for multi-unit auctions. Finally, we analyze single-item all-pay auctions motivated by their connection to contests and show tight bounds on the price of anarchy of social welfare, revenue and maximum bid.Comment: 26 pages, 2 figures, European Symposium on Algorithms(ESA) 201

On the Efficiency of All-Pay Mechanisms.

We study the inefficiency of mixed equilibria, expressed as the price of anarchy, of all-pay auctions in three different environments: combinatorial, multi-unit and single-item auctions. First, we consider item-bidding combinatorial auctions where m all-pay auctions run in parallel, one for each good. For fractionally subadditive valuations, we strengthen the upper bound from 2 [22] to 1.82 by proving some struc- tural properties that characterize the mixed Nash equilibria of the game. Next, we design an all-pay mechanism with a randomized allocation rule for the multi-unit auction. We show that, for bidders with submodular valuations, the mechanism admits a unique, 75% efficient, pure Nash equilibrium. The efficiency of this mechanism outperforms all the known bounds on the price of anarchy of mechanisms used for multi-unit auc- tions. Finally, we analyze single-item all-pay auctions motivated by their connection to contests and show tight bounds on the price of anarchy of social welfare, revenue and maximum bid

Access to care for supported residents

The Aged Care Financing Authority (ACFA) is an independent statutory committee whose role is to provide independent, transparent advice to the Australian Government on financing and funding issues in the aged care sector. ACFA considers issues in the context of maintaining a viable, accessible and sustainable aged care industry that balances the needs of consumers, providers, the workforce, taxpayers, investors and financiers. Under its operating framework, ACFA is required to provide advice by 31 December 2015 to the Assistant Minister for Social Services on cost neutral mechanisms to ensure access to care for supported residents, including reviewing the supported resident ratio. This work entails analysing the efficiency, effectiveness, and appropriate level of: the supported resident ratio for each aged care planning region; and the 25 per cent discount applied to the maximum accommodation supplement amount where a service does not provide more than 40 per cent of its eligible care recipient days to supported residents. In order to assess these two mechanisms it is important to have a clear understanding of what is meant by ‘effective’, ‘efficient’ and ‘appropriate’. For the purposes of this paper a basic definition of each term may include: Effective: successful or capable of producing a desired or intended result Efficient: achieving maximum productivity with minimum wasted effort or expense Appropriate: suitable or proper in the circumstances To assist in the development of its advice to the Assistant Minister, ACFA is seeking the views of stakeholders. Background A principle underlying aged care means testing is that people who can afford to contribute to the cost of their care should do so, and those that cannot afford to pay should not be denied access to services. While aged care accommodation is considered a personal expense, in line with the above principle, the Australian Government has a safety net for those who cannot afford to pay all or part of their accommodation costs. For the purposes of this paper, supported residents are considered to be those residents who are eligible for Government support toward the cost of their accommodation. Submissions closed  9 June 2015

Efficient Breach

The theory of efficient breach is the best known, and the most controversial, product of nearly half a century of economic analysis of contract law. In its simplest form, which is the one that dominates the legal imagination, the theory argues that expectation damages are good because they allow, even encourage, a party to breach when performance becomes inefficient, thereby increasing social welfare. Many noneconomists assume the theory is well supported by principles of neoclassical economics. Thus critics commonly focus on the theory’s moral failings, or on problems with the neoclassical approach more generally. But today no economic thinker defends the simple theory of efficient breach. Forty years of scholarship has established that even from the streamlined perspective of neoclassical economics, the simple theory simplifies too much. Expectation damages do not sufficiently deter some types of opportunistic breach. When a contract does become inefficient, other remedies can do as good or better a job of allowing parties to avoid performance. If expectation damages do provide efficient performance incentives, they might create inefficient incentives elsewhere in the transaction. And an exclusive focus on incentives ignores other welfare-enhancing functions remedies can serve, such as risk allocation and signaling. Many noneconomic critics of efficient breach criticize a theory that no economist would defend. All this notwithstanding, contract theorists should pay attention to efficient breach. Most importantly, a revised theory of efficient breach demonstrates how remedies that apply at the end of a transaction can affect the terms chosen at its birth. In many transactions the remedy is likely to affect the price, complicating arguments about its fairness. Many parties are likely to prefer efficient remedies, posing a challenge to remedial theories that ignore efficiency altogether. And economic analysis suggest mechanisms lawmakers can use to delegate remedial choice to the parties while still giving weight to socially preferred remedies. Theorists who make principled arguments for one or another remedy should attend to economic analyses of remedial design, including the idea of efficient breach, which cast new light on these distinctive features of contract law

Composable and Efficient Mechanisms

We initiate the study of efficient mechanism design with guaranteed good properties even when players participate in multiple different mechanisms simultaneously or sequentially. We define the class of smooth mechanisms, related to smooth games defined by Roughgarden, that can be thought of as mechanisms that generate approximately market clearing prices. We show that smooth mechanisms result in high quality outcome in equilibrium both in the full information setting and in the Bayesian setting with uncertainty about participants, as well as in learning outcomes. Our main result is to show that such mechanisms compose well: smoothness locally at each mechanism implies efficiency globally. For mechanisms where good performance requires that bidders do not bid above their value, we identify the notion of a weakly smooth mechanism. Weakly smooth mechanisms, such as the Vickrey auction, are approximately efficient under the no-overbidding assumption. Similar to smooth mechanisms, weakly smooth mechanisms behave well in composition, and have high quality outcome in equilibrium (assuming no overbidding) both in the full information setting and in the Bayesian setting, as well as in learning outcomes. In most of the paper we assume participants have quasi-linear valuations. We also extend some of our results to settings where participants have budget constraints

Relational capabilities as effectiveness fundamentals in inter-firm cooperation

The aim of this article is to broaden exploratory perspective of the problem of interorganizational cooperation. Economists often pay greater attention to economic (e.g. transaction costs, access to new capabilities) and market (e.g. increasing market power) factors underlying the decision to cooperate with other organizations and seem to neglect the so-called soft factors determining eventual success or failure of cooperation. The article presents a theoretical study in which on the basis of a broad literature study, the author examines selected factors highly influencing the shape and efficiency of interfirm alliances, that are mentioned not only by economists but are subjects of sociological and psychological analyses as well. Among all, the so-called relational capabilities may be of greatest importance. Partnering experience, social embeddedness, interorganizational trust, learning ability, as well as relational mechanisms may be considered as critical success factors in cooperative relationships. The author gives weight to non-economic aspects of management in cooperative relations, as this direction is often neglected in research on the subject of interorganizational collaboration

Efficiency in Deregulated Electricity Markets: Offer Cost Minimization vs. Payment Cost Minimization Auction

A payment cost minimization (PCM) auction has been proposed to solve the problem of inflated wholesale electricity prices. In the electricity industry, where even small changes in $/MW are worth tens of millions of dollars, it is highly important that policy makers have a good understanding of the tradeoffs and impacts of new institutional rules. In this paper we examine efficiency performance of the proposed PCM auction in contrast with the offer cost minimization (OCM) auction currently used by most independent system operators (ISOs) in the United States. For most of the analysis we concentrate on production efficiency, which is attained when a product is supplied to the market by the suppliers that have the smallest average total cost (ATC). An electricity market is efficient if there is no generator that could produce electricity cheaper than the chosen generators do. Production efficiency is desired because 1) it guarantees that market output is produced using the least-cost combination of inputs, thus resources are not wasted, 2) it also rewards the low-cost suppliers and provides the incentives to search for production techniques with even lower costs. [excerpt