Benny Moldovanu

Contests for Status

We study the optimal design of organizations under the assumption that agents in a contest care about their relative position. A principal determines the number and size of status categories in order to maximize output. We first consider the pure status case without tangible prizes. Our results connect the optimal partition in status categories to properties of the distribution of ability among contestants. The top status category always contains a unique element. For distributions that have an increasing failure rate (IFR), a proliferation of status classes is optimal, whereas the optimal partition involves only two categories if the distribution of abilities is sufficiently concave. Moreover, for IFR distributions, a coarse partition with two status categories achieves at least half of the output obtained in the optimal partition with many categories. Finally, if status is derived solely from monetary rewards, we show that the optimal partition in status classes contains only two categories.

License Auctions and Market Structure

We analyze the interplay between license auctions and market structure in a model with several incumbents and several potential entrants. The focus is on the competitiveness induced by the number of auctioned licenses. Under plausible conditions, we show that auctioning more licenses need not result in a more competitive final outcome, contrary to what common sense suggests. This is due to the nature of competition among incumbents, which sometimes exhibits free-riding. We illustrate some results with examples drawn from the recent European license-auctions for third generation (3G) mobile telephony.

NEGATIVE EXTERNALITIES MAY CAUSE DELAY IN NEGOTIATION

We study the strategic equilibria of a negotiation game where potential buyers are affected by identity-dependent, negative externalities. The unique equilibrium of long, finitely repeated generic games can either display delay-where a transaction can take place only in several stages before the deadline-or, in spite of the random element in the game, a well-defined buyer exists that obtains the object with probability close to one.

Partnerships, lemons and efficient trade

We analyze the possibility of efficient trade with informationally interdependent valuations and with a dispersed ownership. A crucial role is played by the sign of the derivatives that measure how valuation functions depend on others’ signals. If valuations are increasing functions of other agents’ signals, it is more difficult to achieve efficient trade with interdependent values than with private values (where the respective derivatives are zero.) In contrast, if valuations are decreasing functions of other agents’ signals, it is easier to achieve efficient trade with interdependent values. Our results unify and generalize the insights of Cramton et al. [1987], Myerson and Satterthwaite [1983], and Akerlof [1970].

On the Equivalence of Bayesian and Dominant Strategy Implementation

We consider a standard social choice environment with linear utilities and independent, one-dimensional, private types. We prove that for any Bayesian incentive compatible mechanism there exists an equivalent dominant strategy incentive compatible mechanism that delivers the same interim expected utilities for all agents and the same ex ante expected social surplus. The short proof is based on an extension of an elegant result due to Gutmann, Kemperman, Reeds, and Shepp (1991). We also show that the equivalence between Bayesian and dominant strategy implementation generally breaks down when the main assumptions underlying the social choice model are relaxed or when the equivalence concept is strengthened to apply to interim expected allocations.

An economic perspective on auctions

The recent spectrum auctions in Europe have shown that serious problems can wise in auctions where multiple complementary objects are being sold (such as blocks of radio spectrum) that will subsequently be used by the wining bidders to compete against each other in downstream markets. Other important instances of such situations include take-off and landing slots at airports and rights for electricity and gas transmission. T I first review some of the theory describing multi-object auctions. I I next outline the importance of strategic effects arising,in auctions that are followed by competition between the bidders., and the tension arising between various goals such as efficiency and revenue maximization. Although more flexible auction formats can have virtues (particularly in taking into account complementarities), they, can also be manipulated by bidders to build market power to the detriment Of consumers. We next apply these insights to the recent European UMTS licence auctions. Finally, we draw the main conclusions and policy, implications.

Resale markets and the assignment of property rights

The consumption of an indivisible good causes identity-dependent externalities to non-consumers. We analyse resale markets where the current owner designs the trading procedure, but cannot commit to future actions. We ask the following questions: (1) Does the identity of the initial owner matter for the determination of the final consumer? (2) Is the outcome always efficient? The major conclusion of our paper is that the irrelevance of the initial structure of property rights arises in resale processes even if there are transaction costs that hinder efficiency. This result complements the Coasian view where the irrelevance of the assignment of property rights is a consequence of efficiency.

Cyclical Delay in Bargaining with Externalities

Externalities between buyers are shown to induce delays in negotiations between a seller and several buyers. Delays arise in a perfect and complete information setting with random matching even when there is no deadline. While with a deadline we identify delays both for positive and negative externalities, without a deadline we find that (1) when externalities are positive, there exists no SPNE in pure strategies with bounded recall that exhibits delay; (2) when externalities are negative, it may happen that all SPNE with bounded recall have the property that long periods of waiting alternate with short periods of activity: This is the cyclical delay phenomenon.

Efficient sequential assignment with incomplete information

We study the welfare maximizing assignment of several heterogeneous, commonly ranked objects to impatient agents with privately known characteristics who arrive sequentially according to a Poisson or renewal process. There is a deadline after which no more objects can be allocated. We first show that the dynamically efficient allocation, characterized by Albright [Albright, S.C., 1974. Optimal sequential assignments with random arrival times. Manage. Sci. 21 (1), 60-67], is implementable by the dynamic version of VCG mechanism. We then obtain several properties of the welfare maximizing policy using stochastic dominance measures of increased variability and majorization arguments. We also propose redistribution mechanisms that 1) implement the efficient allocation, 2) satisfy individual rationality, 3) never run a budget deficit, 4) may run a budget surplus that vanishes asymptotically.

Priority Auctions and Queue Disciplines That Depend on Processing Time

We analyze the allocation of priority in queues via simple bidding mechanisms. In our model, the stochastically arriving customers are privately informed about their own processing time. They make bids upon arrival at a queue whose length is unobservable. We consider two bidding schemes that differ in the definition of bids (these may reflect either total payments or payments per unit of time) and in the timing of payments (before or after service). In both schemes, a customer obtains priority over all customers, waiting in the queue or arriving while he is waiting, who make lower bids. Our main results show how the convexity/concavity of the function expressing the costs of delay determines the queue discipline (i.e., shortest-processing-time-first (SPT), longest-processing-time-first (LPT)) arising in a bidding equilibrium.