Communication of Preferences in Contests for Contracts

This paper models a contest where several sellers compete for a contract with a single buyer. There are several styles of possible designs with a subset of them preferred by the buyer. We examine what happens when the buyer communicates information about his preferences. If the sellers are unable to change their style, then there is no effect on the welfare of the sellers. If the sellers are able to make adjustments, extra information may either boost or damage the sellers' profits. While the chance that there will be a proposal of a style preferred by the buyer cannot decrease, the buyer's surplus may increase or decrease.Contests, Procurement, Communication

A Note on Revenue Effects of Asymmetry in Private-Value Auctions

We formulate a way to study whether the asymmetry of buyers (in the sense of having different prior probability distributions of valuations) is helpful to the seller in private-value auctions (asked first by Cantillon [2001]). In our proposed formulation, this question corresponds to two important questions previously asked: Does a first-price auction have higher revenue than a second-price auction when buyers have asymmetric distributions (asked by Maskin and Riley[2000])? And does a seller enhance revenue by releasing information (asked by Milgrom and Weber[1982])? This is shown by constructing two Harsanyi games of incomplete information each having the same ex-ante distribution of valuations but in one beliefs are symmetric while in the other beliefs are sometimes asymmetric. Our main result is that answers to all three questions coincide when values are independent and are related when values are affiliated.Asymmetric Auctions; Asymmetric Beliefs; Affiliation; Linkage Principle

Multiple equilibria in asymmetric first-price auctions

Maskin and Riley (2003) and Lebrun (2006) prove that the Bayes-Nash equilibrium of �rst-price auctions is unique. This uniqueness requires the assumption that a buyer never bids above his value. We demonstrate that, in asymmetric �rst-price auctions (with or without a minimum bid), the relaxation of this assumption results in additional equilibria that are "substantial." Although in each of these additional equilibria no buyer wins with a bids above his value, the allocation of the object and the selling price may vary among the equilibria. Furthermore, we show that such phenomena can only occur under asymmetry in the distributions of values.Asymmetric auctions, �first-price auctions, multiple equilibria

Vote or Shout

We examine an environment with n voters each with a private value over two alternatives. We compare the social surplus of two mechanisms for deciding between them: majority voting and shouting. In majority voting, the choice with the most votes wins. With shouting, the voter who shouts the loudest (sends the costliest wasteful signal) chooses the outcome. We find that it is optimal to use voting in the case where n is large and value for each particular alternative of the voters is bounded. For other cases, the superior mechanism is depends upon the order statistics of the distribution of values.majority voting, voting procedures, social efficiency

Optimal Allocation without Transfer Payments

Often an organization or government must allocate goods without collecting payment in return. This may pose a difficult problem either when agents receiving those goods have private information in regards to their values or needs or when discriminating among agents using known differences is not a viable option. In this paper, we …nd an optimal mechnnism to allocate goods when the designer is benevolent. While the designer cannot charge agents, he can receive a costly but wasteful signal from them. We …nd conditions for which ignoring these costly signals by giving agents equal share (or using lotteries if the goods are indivisible) is optimal. In other cases, those that send the highest signal should receive the goods; however, we then show that there exist cases where more complicated mechanisms are superior. Finally, we show that the optimal mechanism is independent of the scarcity of the goods being allocated.mechanism design; efficient allocation; waiting lines; lotteries; all-pay auctions

Using Economic Classroom Experiments

Economic classroom experiments are an excellent way to increase student interest, but getting started may be difficult. We attempt to aid the newcomer by recommending which experiments to use and describing the current resources available.

Effective Political Contests

We study two-stage political contests with private entry costs. We show that these political contests could be ineffective, namely, the chance of low ability candidates participating in the contest might be higher than the chance of high ability candidates participating in the contest (and winning). However, by imposing a costly requirement (fee) on the winner of the contest, one can guarantee that the contest will be effective.All-pay auctions, Contests, Entry costs

Learning unethical practices from a co-worker: the peer effect of Jose Canseco

This paper examines the issue of whether workers learn productive skills from their co-workers, even if those skills are unethical. Specifically, we estimate whether Jose Canseco, a star baseball player in the late 1980’s and 1990’s, affected the performance of his teammates by introducing them to steroids. Using panel data, we show that a player’s performance increases significantly after they played with Jose Canseco. After checking 30 comparable players from the same era, we find that no other baseball player produced a similar effect. Furthermore, the positive effect of Canseco disappears after 2003, the year that drug testing was implemented. These results suggest that workers not only learn productive skills from their co-workers, but sometimes those skills may derive from unethical practices. These findings may be relevant to many workplaces where competitive pressures create incentives to adopt unethical means to boost productivity and profits. Our analysis leads to several potential policy implications designed to reduce the spread of unethical behavior among workers.Peer Effects, Corruption, Crime, Externalities

The optimal design of rewards in contests

Using contests to generate innovation has and is widely used. Such contests often involve offering a prize that depends upon the accomplishment (effort). Using an all-pay auction as a model of a contest, we determine the optimal reward for inducing innovation. In a symmetric environment, we find that the reward should be set to c(x)/c′(x) where c is the cost of producing an innovation of level x. In an asymmetric environment with two firms, we find that it is optimal to set different rewards for each firm. There are cases where this can be replicated by a single reward that depends upon accomplishments of both contestants.contests, innovation, mechanism design.

Optimal Allocation without Transfer Payments

Often an organization or government must allocate goods without collecting payment in return. This may pose a difficult problem either when agents receiving those goods have private information in regards to their values or needs or when discriminating among agents using known differences is not a viable option. In this paper, we find an optimal mechanism to allocate goods when the designer is benevolent. While the designer cannot charge agents, he can receive a costly but wasteful signal from them. We find conditions for which ignoring these costly signals by giving agents equal share (or using lotteries if the goods are indivisible) is optimal. In other cases, those that send the highest signal should receive the goods; however, we then show that there exist cases where more complicated mechanisms are superior. Finally, we show that the optimal mechanism is independent of the scarcity of the goods being allocated.mechanism design; efficient allocation; waiting lines; lotteries; all-pay auctions