Some Thoughts on Comparing Economic Mechanisms James T.E. Chapman 1 - - PowerPoint PPT Presentation

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Some Thoughts on Comparing Economic Mechanisms James T.E. Chapman 1 1 Bank of Canada The views expressed in this presentation are those of the authors and do not necessarily represent the views of the Bank of Canada A Fundamental Diagram of

SLIDE 1

Some Thoughts on Comparing Economic Mechanisms

James T.E. Chapman1

1Bank of Canada

The views expressed in this presentation are those of the authors and do not necessarily represent the views of the Bank of Canada

SLIDE 2

A Fundamental Diagram of Structural Econometrics

Outcome Space Environment Z Θ

SLIDE 3

A Fundamental Diagram of Structural Econometrics

Message Space Outcome Space Environment Z Θ M µ(θ) h

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A Fundamental Diagram of Structural Econometrics

Message Space Outcome Space Environment Z Θ M µ(θ) h

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A Fundamental Diagram of Structural Econometrics

Message Space Outcome Space Environment Z Θ M µ(θ) h Estimation

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A Fundamental Diagram of Structural Econometrics

Message Space Outcome Space Environment Z Θ Mo µo(θ) ho Counter factual exercise

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Bank of Canada Auctions

◮ The Bank is the fiscal agent of the Federal Government

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Bank of Canada Auctions

◮ The Bank is the fiscal agent of the Federal Government ◮ Part of its instruments for this function are the Reciever

General (RG) term deposit auctions

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Bank of Canada Auctions

◮ The Bank is the fiscal agent of the Federal Government ◮ Part of its instruments for this function are the Reciever

General (RG) term deposit auctions

◮ These are multi-unit discriminatory auctions held twice (or

more) daily

SLIDE 10

Bank of Canada Auctions

◮ The Bank is the fiscal agent of the Federal Government ◮ Part of its instruments for this function are the Reciever

General (RG) term deposit auctions

◮ These are multi-unit discriminatory auctions held twice (or

more) daily

◮ The Bank has two conflicting goals: revenue maximization on

behalf of the government and promotion of financial market efficiency (allocative efficiency in this case)

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Empirical Auction Design Applied to the BoC RG Auctions

◮ We estimate possible environments that caused the observed

utcomes of the auctions

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Empirical Auction Design Applied to the BoC RG Auctions

◮ We estimate possible environments that caused the observed

utcomes of the auctions

◮ We then consider a mechanism, the Generalized Vickery

Auction (GVA), that in the context we study achieves allocative efficiency

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Empirical Auction Design Applied to the BoC RG Auctions

◮ We estimate possible environments that caused the observed

utcomes of the auctions

◮ We then consider a mechanism, the Generalized Vickery

Auction (GVA), that in the context we study achieves allocative efficiency

◮ We find counter factual levels of revenue and efficiency losses

in comparison to the multi-unit discriminatory auction

SLIDE 14

Empirical Auction Design Applied to the BoC RG Auctions

◮ We estimate possible environments that caused the observed

utcomes of the auctions

◮ We then consider a mechanism, the Generalized Vickery

Auction (GVA), that in the context we study achieves allocative efficiency

◮ We find counter factual levels of revenue and efficiency losses

in comparison to the multi-unit discriminatory auction

◮ This is important since the multi-unit discriminatory auction is

not efficient; but it may provide higher expected revenue.

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Results From the Empirical Comparison

◮ Changing to the mechanism that achieves allocative efficiency

would result in:

SLIDE 16

Results From the Empirical Comparison

◮ Changing to the mechanism that achieves allocative efficiency

would result in:

◮ A loss of at most $1038.22 in expected revenue

SLIDE 17

Results From the Empirical Comparison

◮ Changing to the mechanism that achieves allocative efficiency

would result in:

◮ A loss of at most $1038.22 in expected revenue ◮ A gain in efficiency of at least $0.0045

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Some Concluding Thoughts

◮ This work built on the ideas of all three nobel laureates.

Either in terms of general ideas (Hurwicz), or specific research (i.e. Myerson’s research into optimal auctions, Maskin’s research in efficient auctions)

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Some Concluding Thoughts

◮ This work built on the ideas of all three nobel laureates.

Either in terms of general ideas (Hurwicz), or specific research (i.e. Myerson’s research into optimal auctions, Maskin’s research in efficient auctions)

◮ This work also makes two points about mechanism design:

SLIDE 20

Some Concluding Thoughts

◮ This work built on the ideas of all three nobel laureates.

Either in terms of general ideas (Hurwicz), or specific research (i.e. Myerson’s research into optimal auctions, Maskin’s research in efficient auctions)

◮ This work also makes two points about mechanism design:

SLIDE 21

Some Concluding Thoughts

◮ This work built on the ideas of all three nobel laureates.

Either in terms of general ideas (Hurwicz), or specific research (i.e. Myerson’s research into optimal auctions, Maskin’s research in efficient auctions)

◮ This work also makes two points about mechanism design:

◮ Optimal mechanisms (e.g. GVA) can empirically be very

different from non-optimal mechanisms (e.g. multi-unit auction)

SLIDE 22

Some Concluding Thoughts

◮ This work built on the ideas of all three nobel laureates.

Either in terms of general ideas (Hurwicz), or specific research (i.e. Myerson’s research into optimal auctions, Maskin’s research in efficient auctions)