Economics Research Seminarhttps://weatherhead.case.edu/events/2016/04/13/economics-research-seminar
We compare two mechanisms to implement a simple binary choice, e.g. adopt one
of two proposals. We show that when neither alternative is ex ante preferred, simple majority voting cannot implement the first best outcome. The fraction of the surplus lost rises with the number of voters and the total surplus loss diverges in the limit when the number of voters grows large. We introduce a simple bidding mechanism where votes can be bought at a quadratic cost and voters receive rebates equal to the average of others' payments. This mechanism is budget-balanced, individually rational, and fully efficient in the limit. Moreover, the mechanism redistributes from those that gain from the outcome to those that lose and everyone is better o under bidding compared to voting.
We test the two mechanisms in the lab using an environment with "moderate" and
"extremist" voters. In the first part of the experiment, subjects gain experience with both bidding and voting. Then they collectively decide which mechanism applies in the second part. This endogenous choice of institutions provides clear evidence in favor of bidding: with groups of size eleven, 90% of the groups opt for the bidding mechanism. The observed efficiency losses under voting are close to theoretical predictions and signicantly larger than under bidding. Because of redistribution, the efficiency gain from bidding benefits mostly the moderate voters. Observed behavior under the bidding mechanism deviates from theoretical predictions to some extent, which can be explained by a quantal response equilibrium model if we assume that voters overestimate the chance of being pivotal. These deviations hardly reduce any of the eciency-improving effect of the mechanism, which further supports the adoption of this mechanism in the real world applications.
Please join the Economics Department for a research seminar. This event is open to all Case Western Reserve University faculty, Ph.D. students, economic majors and minors, and those interested in economics research.
||Wednesday, April 13, 2016 from 3 p.m. to 4:30 p.m.
||Peter B. Lewis Building, Room 05
11119 Bellflower Road
Cleveland, OH 44106-7235
||Speaker(s): Jingjing Zhang, Ph.D.
||Sponsored by: Economics Department
||One Man, One Vote Bid
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