Reverse AGT Workshop: Property Rights and the Efficiency of Bargaining
About this series:
At the Reverse AGT Workshop local economists will present an area of economic study for an algorithmic game theory (AGT) audience. The presentations will include a brief introduction to the area and several current research topics. The schedule includes ample time for discussion to make connections to related research in AGT and to highlight research questions that methods from AGT might help to answer. The workshop series is organized by Glen Weyl, Brendan Lucier, and Jason Hartline in conjunction with The Center for Research on Computation and Society at Harvard and Microsoft Research.
Myerson and Satterthwaite (1983) famously argued that property rights can inhibit efficient bargaining by giving agents veto power that creates participation constraints. The literature on property rights asks whether changing the nature or extent of property rights, to share them across different agents or to allow their violation at some compensatory cost to the violator, can improve the efficiency of bargaining. To the extent that it can, the literature then asks why property rights exist in the first place, tracing their value to the investments they induce, and whether there exist institutions that can protect investment incentives while ensuring more efficient ex-post bargaining. Yeon-Koo Che will discuss the impact of liquidity constraints on optimal property rights, Michael Whinston will pose particular questions about the approximate second-best optimality of various simple and natural property rights schemes and Scott Duke Kominers will consider the design of property rights institutions in the most challenging contexts, where there are many complementary pieces of property that need to be assembled.
1:45: Coffee and cookies
2:00: Yeon-Koo Che: Assigning Property Rights and Market Principle
2:30: Q/A and discussion
2:45: Michael D. Whinston: Property Rights and the Efficiency of Bargaining
3:15: Q/A and discussion
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3:30: Scott Duke Kominers: Holdout as a Problem for Market Design
4:00: Q/A and discussion
4:15: Coffee and cookies
4:45: Summary discussion and closing comments
Assigning Property Rights and Market Principle
How should property rights be assigned? Given non-negligible transaction costs, the celebrated Coase theorem does not apply, leading many to appeal instead to the “market principle”: Selling the rights via a competitive market or mechanisms (such as auctions) that implement its outcome often outperforms other methods even when agents may negotiate around the initial allocation. We show that the market principle does not hold when agents are liquidity constrained. In that case, a simple non-market scheme such as random assignment does better than selling via a competitive market, if and only if recipients of the property rights can resell their rights. Similarly, a need-based assignment scheme favoring those with low liquidity enhances welfare. The optimal mechanism displays features of the non-market schemes such as in-kind and cash subsidies.
Property Rights and the Efficiency of Bargaining
Michael D. Whinston
Property rights specify an initial default position from which agents
may subsequently bargain to determine their ultimate allocation. The
economics literature has largely focused on how property rights affect
ex ante investments, under the assumption that bargaining always
results in ex post efficient outcomes. In contrast, we examine how
property rights affect the efficiency of bargaining and the final allocations
that result. We establish a wide class of economic settings and
property rights in which efficient bargaining is impossible. For these
environments, we examine the optimal allocation of property rights,
including simple property rights, liability rules, and dual-chooser rules.
Joint work with Ilya Segal.
Holdout as a Problem for Market Design
Scott Duke Kominers
When prospective sellers have dispersed property rights over complementary goods, holdout problems prevent private assembly. Indeed, in the limit as the number of complements to be assembled grows large, holdout blocks all self-financing, individually rational assemblies with probability 1. I will introduce and formalize this "holdout problem" and explain the inefficiencies of existing, takings-based solutions. Next, I will discuss how encouraging competition can partially or fully mitigate holdout. Finally, I will discuss a market design solution to holdout based on a combination of bilateral bargaining and Quadratic Voting. Applications include land assembly, patent pool formation, and broadcast spectrum reassembly.
Joint work with Jerry R. Green, Steven P. Lalley, and E. Glen Weyl.