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GONIGYT
COMISIÓN NACIONAL DE INVESTIGACIÓN
% CIENTÍFICA Y TECNOLÓGICA
GOBIERNO DE CHILE
COMISION NACIONAL DE INVESTIGACTON CIENCIA Y TECNOLOGIA
VERSION OFICIAL
FECHA: 02/11/2010
PROYECTO INICIACION N°11070159
INVESTIGADOR RESPONSABLE: NICOLAS ANDRES FIGUEROA GONZALEZ
FONDO NACIONAL DE DESARROLLO CIENTIFICO Y TECNOLOGICO (FONDECYT)
Bernarda Morín 551, Providencia - casilla 297-y, Santiago 21
Telefono: 435 43 50 FAX 365 4435
Email: informes.fondecyt@conicyt.cl
INFORME FINAL
PROYECTO FONDECYT INICIACION
AÑO ETAPA: 2009
DURACIÓN: 3 años
11070159
N° PROYECTO:
TÍTULO PROYECTO: PROCUREMENT MECHANISMS: COST REDUCTION, INCENTIVES TO INVESTMENT AND
BARRIERS TO ENTRY
TEORIA ECONOMICA
DISCIPLINA PRINCIPAL:
GRUPO DE ESTUDIO: CS. ECONOM1ADMI
INVESTIGADOR(A) RESPONSABLE: NICOLAS ANDRES FIGUEROA GONZALEZ
DIRECCIÓN: Providencia 385 Depto 101
COMUNA: Providencia
CIUDAD: Santiago
REGIÓN: METROPOLITANA
FONO: 9331095
EMAIL: nicolasf@dii.uchile.cl
INFORME
OBJETIVOS
Cumplimiento de los Objetivos planteados en el Proyecto. Recuerde que los objetivos del proyecto no se refieren a listar actividades
desarrolladas sino a los objetivos desarroflados
2
OBJETIVOS
CUMPLIMIENTO
A model and un unalytical characteritation of the
optimal mechanisms in the case of strategical
cosi reduction investment from the buyers. The
analysis will include the case of commitment and
non-commitment to future mechanism rules (from
the buyer), investment observability and
nonobservability.
A comparison of investment levels in each case
and a comparison with the socially
efficient one.
A model and an analytical characterization of the
optimal mcchanisms in the case of strategical
entry of new seliers and the presence of fixed
costs. The analysis will be made in the case the
seller
can commit to future mechanism rules. A
comparison between the entry level in this
mechanism
and the socially efficient one.
lOTAL
See attached paper hy Cisternas and Figueroa.
FUNDAMENTOjç
TOTAL
As explained in the file Results,pdf, this ohjective
was dcterrnined to be not as interesting as we
thought at the beginning. However, it was
replaced by at least two other results that were
born of this project. On the one hand, the optimal
tool to design a mechanism (see Basso, Figueroa
and Vasquez) and the cosI of asymmetric
information for a planner (see Figueroa and
Correa).
3
A dynamic model of entry decisions and bidding
behavior in an infinite horizon model for a fixed
mechanism that gives advantage lo previous
winners. An algorithm to compute the optimal
Markov
strategies of such a game. Computations of
optimal advantage rules through the numerical
simulations.
TOTAL
The results are attached in the paper Figueroa and
Vega 2010. We expect to have a ftull-fledged
version of the paper by December.
Otro(s) aspecto(s) que Ud. considere importante(s) en la evaluación del cumplimiento de objetivos planteados en la propuesta
original o en las modificaciones autorizadas por los Consejos.
RESULTS OBTAINED:
For each specific goal, describe or summarize the results obtained. Relate each one to work
already published and/or manuscripts submitted. In the Annex section include additional
information deemed pertinent and relevant to the evaluation process.
The maximum Iength for this section is 5 pages. (Anal or Verdana, font size 10).
1) To fully characterize the cost-minimizing mechanism when previous winners can costly invest in
technology that reduces (in stochastic terms) their costs. This includes the cases of commitment
and non-commitment to future mechanisms, and the cases of observability and non-observability of the
investment decisions.
This was achieved completely. The main paper is "Sequential Procurement Auctions and Their Effect on
lnvestment Decisions". It has been submitted and it is attached in as supplementary material. Moreover,
secondary results are in the paper "A note on the Comparative Statics of Procurement Auctions", that is also
attached. Finally, important work about the role of the outside options (which can change the structure of the
optimal mechanism) can be found in the following papers: a) "The Role of Optimal Threats in Auction Design"
(published in Journal of Economic Theory 144(2), 884-897) b) "A Note on Optimal Allocation Mechanisms"
(published in Economic Letters 102(3), 169-1 73) and c)"Optimal Allocation Mechanisms with Single-Dimensional
Private lnformation" (accepted at the Review of Economic Dynamics).
2) To fully characterize the investment leveis observed in the previously described environments, and to
compare the with the socially efficient level.
This was also completely achieved and the analysis is part of the paper "Sequential Procurement Auctions and
Their Effect on lnvestment Decisions". Further comparisons between an optimal mechanism under incomplete
information and its fulI-information counterpart, in general settings, was developed in the paper 'On the
Planner's Loss Due to Lack of Information in Bayesian Mechanism Design" (Lecture Notes in Computer Science,
5814 (2009), pp. 72--84. (Proceedings of SAGT 2009)).
3) To fully characterize the cost-minimizing mechanism when previous winners can costly invest in
technology, but there are also potential entrants, who strategically decide to participate if future
mechanisms are not too biased towards incumbents, therefore allowing them to recoup fixed costs
of entry. To fully characterize the investment and entry levels in the previous environment, and to compare
them with the socially efficient leveis.
This objective was pursued but the models were not interesting enough, for the following reasons. lf there are
potential entrants, which must incur in a fixed cost of entry (as in most of the literature), the advantages given to
incumbents can act as a deterrent, since they reduce the potential profits arising from participation. However, in
any mechanism design setup with transfers (like the ones considered in this research project), this can me
mm ediately mitigated through adequate transfers. Since the mechanisms characterized in (1) and (2) are
optimal (and therefore maximize the buyer's surplus), they can only be improved through an adequate transfer
that guarantees participation from a new entrant.
Then, this objective was replaced by the foliowing: "To fully characterize in which context a regulatory
mechanism achieves better outcornes when the design tool is either prices or quantities". Again, in the context of
this research project this is a natural question, since in the design stage the regulator may decide the tool used
to screen the agents. This objective was achieved and can be found in the attached paper "Monopoly Regulation
under Incomplete Information: Prices versus Quantities".
4) To study, in a fully dynamic infinite horizon model, the optimal level of advantage to incumbents, in
order to balance the benefits of inducing entry and giving incentives to aggressive bidding.
This objective has been achieved, though the manuscript represents just an intermediate stage of development.
The fulI computational work has been completed, so we expect to finish this stage very quickly. The results are
quite surprising (when compared to whatwas achieved in points (1) and (2)) so they deserve sorne comments.
Mechanism that perform optimally for two periods, when generalized to a setup where firms compete in an
infinitely lived economy, yield suboptimal results. The main reason is that, anticipatirig buge gains if they can
obtain enough advantages, firms compete really hard in the first stages. However, such a competition lasts very
little, and soon the designer is facing an entrenched incumbent with very little incentives to offer Iow prices. Even
if competition is really hard for a short period, steady state probabilities imply that the designer is more often
facing an environment with almost no competition and very high costs.
What can be done, and this also has been explored, is lo depreciate the advantage over time. This gives
incentives that are better distributed over time, improving the overali performance of the mechanism.
The preliminary results can be found in the attached paper "Sequential Procurement Auctions in an Infinite
Horizon Model"
OTHER ACHIEVEMENTS OF THE PRO)ECT:
- Research visit(s) to other institution(s).
- Outreach activities related to the project's main topic.
- Any other contribution, not addressed elsewhere, that you consider important.
The maximum Iength for this section is 1 page. (Anal or Verdana, font size 10).
Research Visits
1 visited University of North Carolina 6 times during this period, for a total time of 3 months, the
University of Toronto twice (total 1 month) and New York University three times (total one
month). Moreover three students spent significant time abroad, for periods of two months each:
Jorge Lemus (at Northwestern), Jorge Catepillán (at Northwestern) and Tibor Heumann (at NYU).
M.S. Students
During this period, 1 advised the following students (ah of them at Universidad de Chile):
Gonzalo Cisternas (currently Ph.D. student at Princeton)
Jorge Lemus (currently Ph.D. student at Northwestern)
Jorge Catepillan (currently Ph.D. student at Northwestern)
Jorge Vásquez (currently Ph.D. student at University of Wisconsin)
Carlos Ramírez (currently Ph.D. student at Carnegie Mellon)
Diego Vega
Moreover, 1 am currenthy advising the following students
Tibor Heumann, Daniel Lillo, José Miguel Carrasco and Andrea Canales.
Undergrad Students
1 have advised Andrea Canales (Mathematical Engineeririg at USACH) and Claudio Pareja
(Mathematical Engineering at Universidad de Chile, defense on Nov.5 2010).
1 am currently advising Nicolás Hernández (Mathematical Engineering at Universidad de Chile).
PRO)ECT SUMMARY:
Using non-specialist language, provide a precise and brief description of the project goals,
objectives and results obtained. This summary may be published in CONICYT's web page.
The maximum Iength for this section 15 1 page. (Anal or Verdana, font size 10).
<Begin to write here>
The main objective was to characterize the optimal mechanisms (in the sense of cost
minimization) when the buyer repeatedly iriteracts with a poci of seliers, who can invest in
cost-reduction technologies and behave sequentially rational. More specifically, we wanted to
analyze how advantages to previous winners allow the buyer to increase competition among
existing sellers and give incentives to ¡nvestment, but also deter potential entrants from
participating, since ¡ncumbents can have too much of an advantage.
Moreover we wanted to characterize the investment and entry leveis associated to these
mechanisms, and to compare them with the socially efficient ones. Finalty, we wanted to
extend these results to environments with an infinite horizon.
The results, as it was detailed in a previous document, were satisfactory. We were able to
provide fuli characterizations in a two period model, allowing for the fuli generality of the
mechanism design approach. For the case of an infinite horizon model, we developed a
Markovian model, and we were able to show the limitations of a seller when trying to provide
advantages. Basically, advantages create too little competition in the long run arid too many
incentives to renegotiate.
As unexpected results of this project, we obtained also estimations of the cost of asymmetric
information for a designer (see the attached paper of Correa and Figueroa 2009), the optimal
tool selection of a mechanism designer (see the attached paper by Basso, Figueroa and
Vasquez 2010) and an optimal auction when the winners must negotiate with a third paper
(see the attached thesis of Jorge Catepillan).
PRODUCTOS
ARTÍCULOS
Para trabajos en Prensa! Aceptados/Enviados adjunte copia de carta de aceptación o de recepción.
N°:
Figueroa, Nicolas; Skreta, Vasiliki
Autor (a)(es/as)
Journal of Economic Theory
Nombre Completo de la Revista
The Role of Optimal Threats in Auction Design
Título (Idioma original)
Indexación
ISI
0022-053 1
JSSN
2009
Año:
144
Vol.
2
N°:
884-897
Páginas:
Estado de la publicación a la fecha: Publicada
Otras Fuentes de financiamiento, si las hay
Instituto Científico Milenio Sistemas Complejos de Ingenieria.
:
:
:
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ThreatsFinal.pdf
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N°:
Autor (a)(es/as)
Figueroa, Nicolas; Skreta, Vasiliki
Nombre Completo de la Revista:
Economics Letters
Título (Idioma original)
A Note on Optimal Allocation Mechanisms
Indexación
ISI
0165-1765
ISSN:
2009
Año:
Vol.
102
N°:
3
Páginas:
169-173
Estado de la publicación a la fecha Publicada
Otras Fuentes de financiamiento, si las hay
Instituto Milenio Sistemas Complejos de Ingenieria
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bunching.pdf
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Autor (a)(es/as)
Nombre Completo de la Revista
Título (Idioma original)
Indexación
3
Figueroa, Nicolas; Skreta, Vasiliki
Review of Economic Design
Optimal Allocation Mechanisms with Single-Dimensional Private Information
ISI
1434-4742
ISSN:
Año:
Vol.
Páginas:
Estado de la publicación a la fecha : Aceptada
Otras Fuentes de financiamiento, si las hay:
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Archivo Asociado al artículo :
SingleDimensional.pdf
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OTRAS PUBLICACIONES
Sin información ingresada.
CONGRESOS
Sin información ingresada.
TESIS/MEMORIAS
N°:
Auctions, Negotiations and Information Acquisition
Título de Tesis :
Nombre y Apellidos del(de la) Alumno(a) : Jorge Catepillan
Nombre y Apellidos del(de la) Tutor(a) : Nicolas Figueroa
Título Grado :
Magister
institución :
Universidad de Chile
País:
CHILE
Ciudad
Santiago
:
Estado de Tesis
Fecha Inicio
Terminada
:
01/0612009
:
01/0612010
Fecha Término:
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tesisjc.pdf
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Regulacion optima bajo informacion incompleta: precios versus cantidades
Título de Tesis :
Nombre y Apellidos del(de la) Alumno(a) : Jorge Vasquez
Nombre y Apellidos del(de la) Tutor(a) : Nicolas Figueroa
Título Grado :
Magister
Institución :
Universidad de Chile
CHILE
Santiago
Terminada
0 1/12/2009
3 1/12/2009
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cf-vasquezjo.pdf
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Ciudad :
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N°:
Trabjo de Equipo con Complementariedades Productivas y Esfuerzo Privado
Título de Tesis :
Nombre y Apellidos del(de la) Alumno(a) : Diego Vega
Nombre y Apellidos del(de la) Tutor(a) :
Nicolas Figueroa
Titulo Grado :
Institución :
Magister
Universidad de Chile
País:
Ciudad :
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CHILE
Santiago
Terminada
3 1/03/2009
3 1/03/2010
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InformeTesis4_marzo 1 0.pdf
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ANEXOS
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NoteProcurement.pdf
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PvsQ-BassoFigueroaVasquez.pdf
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N°:
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CF2009.pdf
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ECOLET4078pdf
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YJETFI 3685. pdf
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http
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accept.pdf
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Sequential_Auctionspaper(2).pdf
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A continuación se detallan los anexos fisicos/papel que no se incluyen en el informe en formato PDF.