Mechanism Design in Queueing Problems

A well-known result in incentive theory is that for a very broad class of decision problems, there is no mechanism which achieves truth-telling in dominant strategies, efficiency and budget balancedness (or first best implementability). On the contrary, Mitra and Sen (1998), prove that linear cost queueing models are first best implementable. This paper is an attempt at identification of cost structures for which queueing models are first best implementable. The broad conclusion is that, this is a fairly large class. Some of these first best implementable models can be implemented by mechanisms that satisfy individually rationality.

Achieving the First Best in Sequencing Problems

In a sequencing problem with linear time cost, Suijs (1996) proved that it is possible to achieve first best. By first best we mean that one can find mechanisms that satisfy efficiency of decision, dominant strategy incentive compatibility and budget balancedness. In this paper we show that among a more general and natural class of sequencing problems, sequencing problems with linear cost is the only class for which first best can be achieved.Sequencing problems, Dominant strategy incentive compatibility, Efficiency, Budget balancedness

Financing Infrastructure under Budget Constraint

In this paper we consider the problem of financing infrastructure when the regulator faces a budget constraint. The optimal budget-constrained mechanism satisfies four properties. The first property is bunching at the top, that is the more efficient firms produce the same quantity. The second property is self-selection for the less efficient firms. The third property is that the mechanism is a third best one. In other words, as long as the budget-constraint is binding, the optimal output is strictly lower than the second best output for any given type. Finally, if the budget constraint is too strong, then we have a full bunching solution.Regulation, Asymmetric Information, Budget Constraint

The Delegation Perspective on Representative Democracy

Why do political constituencies delegate decision power to representative assemblies? And how is the size of such assemblies determined? We analyze these questions of constitutional design in a model with voters learning their preferred alternative only after engaging in costly information gathering. We show that there is an optimal assembly size that would be chosen at a constitutional stage. This implies a relationship between assembly and constituency size. We then compared this relationship to actual data. Fitting a single parameter to the data, we show that our model can explain the actual relationship between assembly and constituency size quite well.Constitutional Design, Representative Democracy, Parliament Size, Information Costs

Regulation of an Open Access Essential Facility

In this paper we consider the problem of regulating an open access essential facility. A vertically integrated firm owns an essential input and operates on the downstream market under the roof of a regulatory mechanism. There is a potential entrant in the downstream market. Both competitors use the same essential input to provide the final services to the consumers. The regulator designs a mechanism that guarantees financing of the essential input and adequate competition in the downstream market. We consider a regulatory mechanism that grants non-discriminatory access of the essential facility to a competitor. We show that this mechanism is welfare improving but it generates inefficient entry. That is a more efficient competitor may stay out of the market or a less efficient competitor may enter the market.Regulation, Railways, Network, Entry, Competition, Access charge, Asymmetric Information

Comparing Bertrand and Cournot Outcomes in the Presence of Public Firms

We revisit the classic comparison between Bertrand and Cournot outcomes in a mixed market with private and public firms. A departure from the standard setting, i.e., one where all firms maximize profits, provides new insights. A welfare-maximizing public firm's price is strictly lower while its output is strictly higher in Cournot competition. And whereas the private firm's quantity is strictly lower in Cournot (as in the standard setting), its price can be higher or lower. Despite this ambiguity, both firms, public and private, earn strictly lower profits in Cournot. The consumer surplus is strictly higher in Cournot under a linear demand structure. All these results also hold with more than two firms under a wide range of parameterizations. The ranking reversals also hold in a richer setting with a partially privatized public firm, where the extent of privatization is endogenously determined by a welfare-maximizing government. As a by-product of our analysis, we find that in a differentiated duopoly setting, partial privatization always improves welfare in Cournot but not necessarily in Bertrand competition.Bertrand; Cournot; public firms; partial privatization

Simple Sequencing Problems with Interdependent Costs

In this paper we analyze sequencing situations under incomplete information where agents have interdependent costs. We first argue why Vickrey-Clarke-Groves (or VCG) mechanism fails to implement a simple sequencing problem in dominant strategies. Given this impossibility, we try to implement simple sequencing problems in ex-post equilibrium. We show that a simple sequencing problem is implementable if and only if the mechanism is a `generalized VCG mechanism'. We then show that for implementable n agent simple sequencing problems, with polynomial cost function of order (n-2) or less, one can achieve first best implementability. Moreover, for the class of simple sequencing problems with ``sufficiently well behaved'' cost function, this is the only class of first best implementable simple sequencing problems.Simple Sequencing Problems, Ex-post Equilibrium, First Best Implementability

Efficient Access Pricing and Endogenous Market Structure

We analyze a model of regulated competition in differentiated retail goods and services between an incumbent firm, who owns a network good (an essential input) and a potential entrant, whose cost of production is private information. The regulator sets the retail prices and the access charge that the entrant pays to the incumbent. The decision of the (potential) competitor to enter the retail market crucially depends on the regulatory mechanism, and consequently the market structure is endogenous. We analyze the efficient mechanism that gives rise to a set of “modified” Ramsey prices. We derive a cut-off level of entrant’s marginal cost below which the induced market is a duopoly. We show that, under a linear demand system, there is inefficient entry compared to the social optimum.

Group Strategyproofness in Queueing Models

We examine the tradeoffs between two variants of group strategyproofness, efficiency and budget balance in queueing models. In general, group strategyproofness is incompatible with efficiency and budget balance. Weakening budget balance to feasibility, we show that the incompatibility persists with strong group strategyproofness. We then identify a necessary condition for weak group strategyproofness and efficiency and use it to show that these two requirements are incompatible with budget balance unless there are exactly three agents. We also demonstrate the compatibility when there are three agents. Finally, we identify a class of efficient and weak group strategyproof mechanisms that we call k-pivotal mechanisms and identify the complete subclass of these mechanisms that are feasible

On the coincidence of the Prenucleolus and the Shapley Value

We identify a sufficient class of coalitional form games with transferable utility for which prenucleolus coincides with the Shapley value. We then apply our result to simple games and to generalized queueing games.