THE MARKET FOR EVALUATIONS

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THE MARKET FOR EVALUATIONS

• C. Avery, P. Resnick and R. Zeckhauser
• The American Economic Review (Jun 1999)

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Inefficiencies

• Individual decision makers do not generate
  socially efficient allocation
• Too few evaluations
• Wrong players provide early evaluations
• Statistical herding

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Inducing the efficient allocation
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Source Agent Based E-Commerce (http//www.cs.utex
as.edu/pstone/Courses/395Tfall03/resources/index.
html)
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Payment Schemes

• Centralized broker
• Coordinates production of evaluations and
  distribution of surplus
• Announces equilibrium prices, and offers
  subsidies to initial evaluators

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Payment Schemes

• Game 1
• player A can pay player B any amount between 1-5
• Restores social efficiency

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Payment Schemes

• Game 2
• Subsidy of 7 redresses imbalance
• A prefers to evaluate rather than wait
• Game 2 Another example
• How about a subsidy of 3 ? (-132 expected
  payoff)
• A would rather wait
• But what if A is informed that B will not accept
  the subsidy

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Payment Schemes

• Solution Announce subsidy and assign actions
• Assign A to go first
• Expected payoff of 2 better than 0 (wait)
• Disadvantages
• Knowledge of each players intensity values
• Forceful

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Payment Schemes

• Broker can announce a price and an equilibrium
  production schedule (n in the first round)
• Players can decide their own positions
• Recap Game 2

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Payment Schemes

• Game 2 Broker offers subsidy 7, n 1 (one
  player is sure to consume in round 1)
• A ai -1 7 6 bi (1) 5
• B ai 10 7 17 bi (1) 20
• A prefers consuming, B prefers waiting

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Payment Schemes

• Batch-Mode Game
• Broker announces a price and quantity n
• Each player knows that in equilibrium exactly n
  players are sure to accept the subsidy to consume
• One-at-a-time Game
• Broker announces subsidies for roles in the
  evaluation tree

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Desirable Traits for a Pricing Scheme

• Same-Action-Same-Price (SASP)
• Players providing (or consuming) the same service
  should receive (or pay) the same price
• Budget Balance
• Amount collected from all players should equal
  the amount paid out in subsidies
• Voluntary Provision
• A player, knowing the charges and subsidies, will
  have a positive expected value from participating
  in the game

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Proposition 1

• No efficient payment mechanism can simultaneously
  satisfy all the three traits
• Proof by counter-example
• 3 player batch-mode game, with social optimum
• A consumes first-round, expected payoff -7
• B and C consume second-round, benefits 5 and 3
  resp. provided As eval is Good.
• A must be paid at least 7 (voluntary
  participation)
• C will not participate at cost gt 3
• Following SASP, B pays same as C (33 6)
• Violates budget balance

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Other Propositions

• Efficient allocation with an unbalanced budget
  (Prop. 2)
• Broker determines n evaluations at optimum
• Arrange for n players in first-round
• x (n1) (n) is the subsidy to first-round
  evaluators
• Makes n1th player indifferent between
  evaluating and waiting
• n1 price auction generalization of Vickery
  second-price auction

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Other Propositions

• Efficient allocation with up-front subscription
  fees and ex ante voluntary participation.
• Efficient allocation with price discrimination
• Relaxes the SASP requirement
• Expanded model Players differ
• In taste, and
• evaluation skills
• SASP does not lead to an efficient allocation
  type-SASP