Distributing Resources: An Exploration of Auctions and Other Allocation Mechanisms

This thesis consists of four largely independent essays on game theory and the allocation of resources. It applies both theoretical and empirical methods, covering both cooperative and non-cooperative game theoretical approaches. The thesis focuses on three different allocation mechanisms: auctions, grandfathering and the Shapley value. The first two mechanisms are applied directly within the fisheries context whilst the Shapley value is discussed in a general setting. Theoretical applications often employ a number of assumptions, which are rarely met in practice, and fail to take into account the contextual setting. This thesis empirically analyses real life examples in order to enhance our understanding of individual players and their interactions. The first chapter on the famous solution concept — the Shapley value — introduces a cooperative game in which some of the information may be missing from the characteristic function. We put forward two ways of extending the Shapley value to the missing information domain. Using our proposals, it is possible to find a ‘fair and efficient solution’ in situations where coalitions might not have formed or information is withheld. The second chapter presents a theoretical model for fisheries which is capable of exploring the effects of utilising different combinations of allocation mechanisms — grandfathering and auctions — for fishing quota. In the model, the government has applied an environmental tax, which can be reduced through investment, to limit the negative externalities of the fishing activity. This in turn affects the firms' valuations at the auctions, incorporating bidder valuations as an endogenous component within the model. The model demonstrates the effects of changing specific variables within the government's control on revenue, total welfare, level of investment and equilibrium prices at the auction. We conclude by stating that the model is applicable in the fisheries context, but further work is required to improve its relevance in the policy arena. The third chapter is an empirical essay on the ascending and uniform-price multiunit auctions of fishing rights in the Faroe Islands from 2016 to 2018. In the essay, we identify problems with signalling, bidding rings and low-price equilibria. We believe this is the first case of all three phenomena happening in the same bidding environment. We conclude that the underperformance of ascending and uniform-price auctions are not just theoretical curiosities, but rather a pervasive phenomenon in practical auction design. We continue in the empirical domain in the fourth chapter, where we use several methods to analyse price patterns in the auctions at the Faroe Fish Market in 2017. We apply the method employed by Ashenfelter (1989) in his work on the declining price anomaly. We also run regressions to establish how the auction round affects absolute and relative price changes and explore the impact of the number of bids, quantity sold and the price of the first round. Finally, we analyse the average price of cod in every round across the whole period. We find that declining prices are a strong feature of the Faroese fish market, but after considering contributing factors, we conclude that perhaps declining prices should not come as such a surprise after all

More Market-Oriented Than the United States and More Socialist Than China: A Comparative Public Property Story of Singapore

Compared to the more illustrious conceptualization of private property, the conceptualization of public property remains at a surprisingly infantile stage. The very definition of public property is ambiguous. This article utilizes a comparative case study of traffic congestion policies in the United States, China, and Singapore to highlight the conceptual pitfalls posed by the current confusion on public property. This article proposes a refined public property framework that offers greater conceptual clarity on the real issues at stake. In particular, this article argues that “property” in public property should include regulatory permits while “public” in public property should not be distracted by the requirement of public access. The allocation considerations of efficiency and fairness governing conventional public property are equally applicable to economically valuable regulatory permits. Similarly, public access is a mere form of allocation that should be changed upon alterations in use pattern arising from technological advancement and socioeconomic changes

A Property Rights Approach to Temporary Work Visas

Temporary labor visa rules in the United States are criticized on three grounds: for failing to allocate visas efficiently, for failing to adequately protect domestic workers, and for exposing migrant workers to exploitation. We argue that it is possible to address all three problems by re-configuring the property rights associated with the visas and carefully designing the mechanism for allocating those rights. Our core insight is to unbundle the two rights that today are typically combined: the firm’s right to employ a foreign worker, and the worker’s right to reside and work in the country during that time. A three-pronged approach— auctioning abstract pre-contract visas to firms, allowing their trade on a secondary market, and transferring the visa’s ownership to the worker upon signature of the employment contract—has the potential to improve the efficiency of visa allocation, to better shield domestic workers, and to protect foreign workers from exploitation

Optimal design of Dutch auctions with discrete bid levels.

The theory of auction has become an active research area spanning multiple disciplines such as economics, finance, marketing and management science. But a close examination of it reveals that most of the existing studies deal with ascending (i.e., English) auctions in which it is assumed that the bid increments are continuous. There is a clear lack of research on optimal descending (i.e., Dutch) auction design with discrete bid levels. This dissertation aims to fill this void by considering single-unit, open-bid, first price Dutch auctions in which the bid levels are restricted to a finite set of values, the number of bidders may be certain or uncertain, and a secret reserve price may be present or absent. These types of auctions are most attractive for selling products that are perishable (e.g., flowers) or whose value decreases with time (e.g., air flight seats and concert tickets) (Carare and Rothkopf, 2005). I began by conducting a comprehensive survey of the current literature to identify the key dimensions of an auction model. I then zeroed in on the particular combination of parameters that characterize the Dutch auctions of interest. As a significant departure from the traditional methods employed by applied economists and game theorists, a novel approach is taken by formulating the auctioning problem as a constrained mathematical program and applying standard nonlinear optimization techniques to solve it. In each of the basic Dutch auction model and its two extensions, interesting properties possessed by the optimal bid levels and the auctioneer's maximum expected revenue are uncovered. Numerical examples are provided to illustrate the major propositions where appropriate. The superiority of the optimal strategy recommended in this study over two commonly-used heuristic procedures for setting bid levels is also demonstrated both theoretically and empirically. Finally, economic as well as managerial implications of the findings reported in this dissertation research are discussed

Essays in Natural Resource Economics

Allocation decisions in many natural resource markets are governed by mechanisms designed to alleviate information asymmetries and other types of market imperfections. For example, the crew in most commercial fisheries is remunerated via a lay system of payments designed to alleviate a potential team agency problem. The four essays in this dissertation explore the use of mechanisms in natural resource and environmental economics. The first essay examines the lay system of payments in commercial fisheries. Under the lay system, the harvesting crew is remunerated via a share of total vessel revenues less a portion of trip expenditures. The essay has two goals. First, the essay provides an explanation for the lay system as an incentive mechanism to alleviate a potential team agency problem. This explanation of the lay system explains anomalies that are at odds with the theory of pure risk sharing. Second, the essay shows the implications of the lay system for econometric modeling of fisheries and for understanding firm behavior. The second and third essay, examine bidder behavior in auctions for cutting rights of standing timber in British Columbia. The second essay provides an empirical framework for estimating treatment assignment of observations given data on outcomes. The framework is used to explore whether bidder collusion was evident in a data set of nearly 3,000 auctions (over 10,000 individual bids) for cutting rights of standing timber in British Columbia from 1996-2000. The third essay examines the role of ex ante uncertainty over private values and ex post resale opportunities on bidder behavior. The essay extends the theoretical work of Haile (2003) by allowing for risk-averse bidders. The theoretical model is tested by examining both field data and experimental data from the lab. The fourth essay provides a formal model of individual contribution decisions under a tontine mechanism. The essay analyzes the performance of tontines and compares them to another popular fundraising scheme: lotteries. Individual contribution decisions under the optimal tontine, an equivalent valued single-prize lottery, and the voluntary contribution mechanism are compared using a controlled laboratory experiment

Fishing rights, redistribution and policy : the South African commercial T.A.C. fisheries

The main objective of this thesis is to provide an analysis of the economic logic behind fisheries policy and redistribution in South African. An examination of the institutional and organizational evolution reveals that South African fisheries policy followed the world trend in the movement toward quota management systems. However, it is argued that due to the peculiarities of the Apartheid political system, South Africa developed a unique and persistent structure of individual fishing rights that resulted in a transfer of power from the fisher to monopsonistic, and subsequently vertically integrated, fish processing companies. Problems, however, arose with the need to redistribute fishing rights to previously repressed racial groups. It is proposed that, within a specific form (TAC), the structure of individual fishing rights can be decomposed into four operational rules, namely, the right of participation, asset size, tradability and duration of term. Policy design is restricted to a feasible set of rules that impact on the flexibility of the system, the incentives facing private fishing companies and fishers, the efficiency of the fisheries management plan and finally the effect it has on a redistribution strategy. Within this analytical framework, South Africa's policy yields a very flexible system favourable to monopsonistic industrial organisation. However, by adding a redistribution constraint, this structure has a number of important effects. First, as new quota holders are added the information costs for effective fisheries management increase exponentially. Second, the transaction costs to private fishing companies are increased. Third, only the resource rent is redistributed (weak redistribution). Next, the micro to small vessel fisheries, the medium vessel fisheries and the large vessel fisheries are examined separately. The major aim is to determine, within the available data, the effect that a weak redistribution policy (redistribution of the resource rent), has on strong redistribution (redistribution of fishing capital and skills). The evidence definitely supports the analytical framework and suggests that fundamentally the structure of individual fishing rights, which evolved in response to a monopsonistic industrial organisation during the apartheid era in South Africa, works against strong redistribution. Also, that different fisheries face different constraints and that these should in certain instances be treated separately

Dynamic tradable discharge permits for managing river water quality : an evaluation of Australia's Hunter River salinity trading scheme

This study provides the first comprehensive quantitative assessment of Australia's pilot Hunter River Salinity Trading Scheme (PHRSTS). It casts new light on the relative merits of tradable permit system in terms of environmental and cost effectiveness under the PHRSTS, highlighting the potential benefits from an integrated regulatory instrument for management of natural resource and environmental quality. The PHRSTS was introduced by the New South Wales Environmental Protection Authority (NSW EPA) in 1995 to regulate the discharge of saline water from the coal mines and electric power generators into the Hunter River, which was affecting other uses of the River. It was made permanent in 2002, becoming the formalised HRSTS (FHRSTS). Allowing for the total permitted salt discharge to vary dynamically from day to day subject to river flow conditions, and for salt permits be traded among the mines and power generators, the Scheme is widely known as Australia's first active water quality trading program, and still appears to be the only dynamic tradable permits scheme operating in the world. The NSW EPA has claimed that the PHRSTS achieved significant environmental and economic benefits, but until now there has been no rigorous examination of its operational performance. To help fill this gap, this study investigates the origins, evolution and institutional arrangements of the PHRSTS, examines the performance of the salt credits trading market of the PHRSTS and the two credit auctions of the FHRSTS, and evaluates the environmental and economic effectiveness of the PHRSTS. In particular, this study finds that: (1) The credits trading market of the PHRSTS was active in terms of both volume of trading and number of participants, in spite of the high proportion of intra-company trading. The successful bidders in the credit auctions of the FHRSTS were a mix of sellers and buyers on the credit trading market of the PHRSTS. The low, narrowly-spread auction prices suggest that the firms did not value the credits highly and that the differentials in marginal cost of salt control across the participants are not large enough to yield significant savings from the credit trading. (2) The overall salinity objectives of the Hunter River were attained under the PHRSTS. However, the PHRSTS did not significantly improve the river salinity compared to the previous Trickle Discharge management system. The PHRSTS only generated trivial savings in social damage cost. (3) The PHRSTS generated measurable cost savings in the total control cost of saline water to its participants over its entire period. But this was minor in relation to the participants' sales revenues, and the tradability of the discharge permits accounted for only a very small proportion of the control cost savings. Dynamicism, instead oftradability, of the discharge permits was by far the main source of the cost savings. This study therefore concludes that neither the environmental effectiveness nor the economic effectiveness of the PHRSTS is as impressive as that claimed by the NSW EPA. Nevertheless, the valuable experience drawn from the experimental design and operation of the PHRSTS should prove useful for broader water quality management strategies in Australia and elsewhere

Information Management and Market Engineering. Vol. II

The research program Information Management and Market Engineering focuses on the analysis and the design of electronic markets. Taking a holistic view of the conceptualization and realization of solutions, the research integrates the disciplines business administration, economics, computer science, and law. Topics of interest range from the implementation, quality assurance, and advancement of electronic markets to their integration into business processes and legal frameworks

Cyber-Physical Systems Design: Electricity Markets and Network Security

This thesis presents Cyber-Physical Systems Design (CPS Design). Design of CPS is challenging and requires interdisciplinary studies of engineering and economics because of the distinguishing features of CPS: strategic (self profit-maximizing) decision makers, complex physical constraints, and large-scale networked systems. We study these features by focusing on designing markets with complex constraints including both policy and physical constraints, and decomposing large-scale CPS within the context of electricity markets and network security. We first study market design for implementation of complex electricity policy targets, i.e. sustainability, reliability, and price efficiency, by efficient design of spot, carbon, and capacity markets that correct the deficiencies of the current electricity markets; this design does not take into account the network constraints due to the Kirchhoff's laws. To address this problem, we develop a framework based on the design of efficient auctions with constraints. Our market design sheds light on major debates in electricity policy including capacity-and-energy vs energy-only markets, carbon market vs carbon tax, and use of price or offer caps. Second, we add network constraints due to Kirchhoff's laws of current and voltage, which are unique to electricity networks, to the design of electricity spot markets with complex physical constraints. To address this problem, we develop a framework for the design of networked markets based on the ideas from local public goods. Finally, we study the design of defense policies for large-scale network security. Our approach is to design approximately optimal defense policies that are computable. We develop a framework based on the notion of influence graph, which captures the connectivity of the security states of the system elements, to decompose the system into subsystems. We then design approximately optimal defense policies for each sub-system. We consider non-Bayesian uncertainty and even though we do not model the attacker as a strategic decision maker, we compensate (in part) for the lack of this feature by adopting a minmax performance criterion.PHDElectrical Engineering: SystemsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttps://deepblue.lib.umich.edu/bitstream/2027.42/144165/1/rasouli_1.pd