Discussion Paper No. 27
November 3, 2021
Ex-Post Optimal Knapsack Procurement
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Abstract:
We consider a budget-constrained mechanism designer who selects an optimal set of projects to maximize her utility. Projects may differ in their value for the designer, and their cost is private information. In this allocation problem, the quantity of procured projects is endogenously determined by the mechanism. The designer faces ex-post constraints: The participation and budget constraints must hold for each possible outcome, while the mechanism must be strategy proof. We identify settings in which the class of optimal mechanisms has a deferred acceptance auction representation which allows an implementation with a descending-clock auction. Only in the case of symmetric projects do price clocks descend synchronously such that the cheapest projects are implemented. The case in which values or costs are asymmetrically distributed features a novel tradeoff between quantity and quality. The reason is that guaranteeing allocation to the most favorable projects under strategy proofness comes at the cost of a diminished expected number of conducted projects.
Keywords:
mechanism design; knapsack; budget; procurement; auction; deferred acceptance auctions;
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Discussion Paper No. 26
Can a Bonus Overcome Moral Hazard? An Experiment on Voluntary Payments, Competition, and Reputation in Markets for Expert Services
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Interactions between players with private information and opposed interests are often prone to bad advice and inefficient outcomes, e.g. markets for financial or health care services. In a deception game we investigate experimentally which factors could improve advice quality. Besides advisor competition and identifiability we add the possibility for clients to make a voluntary payment, a bonus, after observing advice quality. We observe a positive effect on the rate of truthful advice when the bonus creates multiple opportunities to reciprocate, that is, when the bonus is combined with identifiability (leading to several client-advisor interactions over the course of the game) or competition (allowing one advisor to have several clients who may reciprocate within one period).
Keywords:
asymmetric information; principal-agent; expert services; deception game; sender-receiver game; reciprocity; reputation; experiments; voluntary payment; competition;
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Discussion Paper No. 20
The Employment Effects of Countercyclical Infrastructure Investments
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We estimate the causal impact of a sizable German infrastructure investment program on employment at the county level. The program focused on improving the energy efficiency of school buildings, making it possible to use the number of schools as an instrument for investments. We find that the program was effective, creating one job for one year for each €25’000 of investments. The employment gains reached their peak after nine months and dropped to zero quickly after the program’s completion. The reductions in unemployment amounted to two-thirds of the job creation, and employment grew predominately in the construction and non-tradable industries.
Keywords:
infrastructure investments; job creation; employment dynamics; countercyclical fiscal policy;
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Discussion Paper No. 19
The 2016 Nobel Memorial Prize in Contract Theory
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Oliver Hart and Bengt Holmström were awarded the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for their fundamental contributions to contract theory. This article offers a short summary and discussion of their path breaking work.
Keywords:
contract theory; nobel prize; optimal incentive schemes; incomplete contracts;
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Discussion Paper No. 18
Relative Consumption Preferences and Public Provision of Private Goods
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This paper shows that the public provision of private goods may be justified on pure efficiency grounds in an environment where individuals have relative con- sumption concerns. By providing private goods, governments directly intervene in the consumption structure, and thereby have an instrument to correct for the ex- cessive consumption of positional goods. We identify sufficient conditions when the public provision of private goods is always Pareto-improving, even when (linear) consumption taxes are available. In fact, with the public provision of private goods, there are cases where first-best allocations can be achieved, and a luxury tax on the positional good is redundant.
Keywords:
public provision; social preferences; status-seeking;
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Discussion Paper No. 17
Sender-Receiver Games with Cooperation
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We consider generalized sender-receiver games in which the sender also has a decision to make, but this decision does not directly a§ect the receiver. We introduce speciÖc perfect Bayesian equilibria, in which the players agree on a joint decision after that a message has been sent (ìtalk and cooperate equilibrium,î TCE). We establish that a TCE exists provided that the receiver has a ìuniform punishment decisionî (UPD) against the sender.
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Discussion Paper No. 16
Matching Donations Without Crowding Out?
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Is there a way of matching donations that avoids crowding out? We introduce a novel matching method where the matched amount is allocated to a different project, present some simple theoretical considerations that predict reduced crowding out or crowding in (depending on the degree of substitutability between the two projects) and present evidence from a large- scale natural field experiment and a laboratory experiment. Similar to findings in the literature, conventional matching for the same project results in partial crowding out in the field experiment and, as predicted, crowding out is reduced under the novel matching scheme. The lab experiment provides more fine-tuned evidence for the change in crowding and yields further support for the theory: the novel matching method works best when the two projects are complements rather than substitutes.
Keywords:
charitable giving; matched fundraising; natural field experiment;
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Discussion Paper No. 15
Meta-Search and Market Concentration
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Competing intermediaries search on behalf of consumers among a large number of hor- izontally differentiated sellers. Consumers either pick the best deal offered by a random in- termediary, or compare the intermediaries. A higher number of deal finders has the direct effect of decreasing their search effort, but also increases the incentives for consumers to be- come informed. A higher share of informed consumers in turns increases the search effort of deal finders, so that the sign of the total effect is ambiguous. If the total effect of lower concentration is to increase search effort, it always decreases the price offered by sellers.
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Discussion Paper No. 14
Gender Differences in Tournament Choices: Risk Preferences, Overconfidence or Competitiveness?
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A large number of recent experimental studies show that women are less likely to sort into competitive environments. While part of this effect may be explained by gender differences in risk attitudes and overconfidence, previous studies have attributed the majority of the gender gap to gender differences in a separate ‘competitiveness’ trait. We re-examine this result using a novel experimental technique that allows us to separate competitiveness from alternative explanations by experimental design. In contrast to the literature, our results imply that the whole gender gap is driven by risk attitudes and overconfidence, which has important implications for future research.
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Discussion Paper No. 13
Measuring Applicant Quality to Detect Discrimination In Peer-to-Peer Lending
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We measure the quality of applications for online peer-to-peer lend- ing in Germany and relate it to gender discrimination. The data context allows summarizing application quality as a single numeric measure, the expected internal rate of return. The measure serves as a control variable and is interacted with the applicants’ gender. We find that women enjoy higher funding rates than men, mainly be- cause they are less punished when they offer a low application qual- ity. The evidence is consistent with the hypothesis that the predom- inantly male lenders have a less precise understanding of women’s applications than of men’s applications.
Keywords:
gender discrimination; household finance; irrational beliefs;
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