CORDIS - EU research results

Engineering Social and Economic Institutions

Final Report Summary - ESEI (Engineering Social and Economic Institutions)

Shortly after the start of the ERC-funded project “Engineering Social and Economic Institutions” in 2010 a Market Design Centre (called ESEI) under the lead of Professor Jacob Goeree was established at the University of Zurich. Throughout the lifetime of the project, the ESEI group consisted of multiple senior research staff members and post-docs from various backgrounds who share the interest in market design.
Market design is a relatively young field that aims not just to analyse markets but to improve, maintain, and possibly even redesign them. An important early example of this practice are the telecommunication spectrum auctions conducted by the U.S. Federal Communications Commission (FCC). After years of assigning radio frequencies via an administrative process (or “beauty contest”), the FCC switched to using a more competitive process in the nineties. The success of the FCC auctions formed an important impetus for research in this area and has motivated other countries to follow suit. Nowadays, spectrum and other valuable public assets are typically allocated by auctions. Another important example is the redesign of labor clearinghouses including those for medical interns, law clerks, and economists.
The tools of a market designer differ from those of the traditional economist. Much like the design of a new airplane requires paying attention to many engineering details besides Bernoulli's basic principle, designing new market institutions requires more than insights from game theory and mechanism design theory alone. Much like a newly designed plane would not be put to commercial use without extensive wind tunnel testing, proposals for improvements to social or economic institutions are tested in laboratory experiments before being implemented. This combination of theory and laboratory testing defines ESEI’s “engineering” approach to market design.
The ESEI group has been very productive and all sub-projects outlined in the original proposal (namely “Package Auctions”, “Package Exchanges”, “Creating Optimal Incentives in R&D Contests”, “Voting Institutions”, and “Social Learning, Social Networks, and Bounded Rationality”) have been developed successfully. One measure of ESEI’s success is its impressive number of publications during the lifetime of the project. The core members of ESEI have published 3 books and 37 articles (see ), many of them in top general interest journals (Econometrica (2), American Economic Review) and top field journals (including Theoretical Economics, Games and Economic Behavior (2), Journal of the European Economic Association (2), American Economic Journal: Micro (3), Experimental Economics). Additionally, multiple working papers have been produced (see ); some of these are currently revised for resubmission on request of top journals. Moreover, the project has stimulated various research studies which are still ongoing. A one-page summary does not suffice to describe the numerous research achievements under this project, we will therefore only highlight a small selection of papers that address different parts of the original proposal.
Multiple studies have analysed and pointed out problems with auction formats that have been applied for large scale privatisation of valuable public assets (e.g. Goeree and Lien, 2016 Theoretical Economics & 2014 Journal of Economic Theory; Goeree et al., 2010 Journal of the European Economic Association), other studies have proposed and tested new auction formats (e.g. Bichler, Goeree, Mayer, Shabalin, 2014 Telecommunications Policy; Brunner, Goeree, Holt, Ledyard, 2010 American Economic Journal: Micro; Goeree and Holt, 2010 Games and Economic Behavior). An issue with many of the auction formats under consideration is that difficulties arise when bidders are interested in obtaining particular sets (packages) consisting of multiple units that are for sale. In an auction format that allocates units individually buyers are prone to an exposure problem, leaving them with a less desired subset despite high bids on the individual units.
Other research of ESEI group members concerns state of the art Mechanism Design and Auction Theory (e.g. Mierendorff, 2016 Journal of Economic Theory & 2013 Games and Economic Behavior; Gershkov, Goeree, Kushnir, Moldovanu, Shi, 2013 Econometrica; Che, Kim, Mierendorff, 2013 Econometrica). These general theoretical results are useful to a variety of applications.
The particular case of optimal mechanisms for innovation and complications in R&D contests arising through externalities have been studied by Bedard (“Optimal Incentives for Innovation”, work in progress) and Klose and Kovenock (2015, Economic Theory) respectively.
Moreover, Research at the ESEI centre has addressed diverse issues related to voting rules. The possibility of expressing the strength of voters’ preferences and compensating losers of a referendum through a quadratic voting mechanism has been examined theoretically and experimentally by Goeree and Zhang (Revise&Resubmit in Games and Economics Behavior). Differences in voting rules depending on the distribution of preference and the effect of voting rules on information acquisition have been analysed by Goeree and Yariv (2011, Econometrica) and Louis (2015, Economics Letters), respectively.
The ESEI group has not only disseminated their own research through presentations at conferences and invited talks, but has also actively contributed to an improved intellectual exchange within the growing field of Market Design by organising five Market Design Workshops in different places (see Moreover, ESEI has co-hosted two large conferences: the Economic Science Association World Meetings 2013 and 2015. At these conferences a novel approach to session scheduling has been applied, eliciting preferences from participants and using a matching algorithm to create an optimal program (Goeree, Lindsay, Zhang, 2016 "EZ Matching" working paper). Over the lifetime of the project, the ESEI group has achieved great visibility and has been able to win various world renowned researchers in the field of market design as fellows.