Thesis advisor: M. Utku Ünver / Thesis advisor: M. Bumin Yenmez / This thesis is a collection of three essays in market design concerning designs of matching markets, affirmative action schemes, and COVID-19 testing policies. In Chapter 1, we explore the possibility of designing matching mechanisms that can accommodate non-standard choice behavior. In the standard model of matching markets, preferences over potential assignments encode participants' choice behavior. Our contribution to this literature is introducing behavioral participants to matching theory's setup. We pin down the necessary and sufficient conditions on participants' choice behavior for the existence of stable and incentive compatible matching mechanisms. Our results imply that well-functioning matching markets can be designed to adequately accommodate a plethora of non-standard (and standard) choice behaviors. We illustrate the applicability of our results by demonstrating that a simple modification in a commonly used matching mechanism enables it to accommodate non-standard choice behavior. In Chapter 2, we show that commonly used methods in reserving positions for beneficiaries of affirmative action are often inadequate in settings where affirmative action policies apply at two levels simultaneously, for instance, at university and itsdepartments. We present a comprehensive evaluation of existing procedures and formally and empirically document their shortcomings. We propose a new solution with appealing theoretical properties and quantify the benefits of adopting it using recruitment advertisement data from India. Our theoretical analysis hints at new possibilities for future work in the literature on the theory of apportionment (of parliamentary seats). Chapter 3 delves into the designs of the commonly used and advocated COVID-19 testing policies to resolve a conflict between their allocative efficiency and the ability to identify the infection rates. We present a novel comparison of various COVID-19 testing policies that allows us to pin down ordinally efficient testing policies that generate reliable estimates of infection rates while prioritizing testing of persons suspected of having the disease. / Thesis (PhD) — Boston College, 2022. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

Thesis advisor: M. Utku Ünver / Thesis advisor: Tayfun Sönmez / This thesis is a collection of three essays in market design concerning designs of matching markets with aggregate constraints, affirmative action schemes, and investigating boundaries of simultaneous efficiency-stability relaxation for one-to-one matching mechanisms.In Chapter 1, I establish and propose a possible solution for a college housing crisis, a severe ongoing problem taking place in many countries. Every year many colleges provide housing for admitted students. However, there is no college admissions process that considers applicants’ housing needs, which often results in college housing shortages. In this chapter, I formally introduce housing quotas to the college admissions problem and solve it for centralized admissions with common dormitories. The proposed setting is inspired by college admissions where applicants apply directly to college departments, and colleges are endowed with common residence halls. Such setting has many real-life applications: hospital/residents matching in Japan (Kamada and Kojima, 2011, 2012, 2015), college admissions with scholarships in Hungary (Biró, 2012), etc. A simple example shows that there may not be a stable allocation for the proposed setting. Therefore, I construct two mechanisms that always produce some weakened versions of a stable matching: a Take-House-from-Applicant-stable and incentive compatible cumulative offer mechanism that respects improvements, and a Not-Compromised-Request-from-One-Agent-stable (stronger version of stability) cutoff minimising mechanism. Finally, I propose an integer programming solution for detecting a blocking-undominated Not-Compromised-Request-from-One-Agent-stable matching. Building on these results, I argue that presented procedures could serve as a helpful tool for solving the college housing crisis. In Chapter 2, I propose a number of solutions to resource allocation problems in an affirmative action agenda. Quotas are introduced as a way to promote members of minority groups. In addition, reserves may overlap: any candidate can belong to many minority groups, or, in other words, have more than one trait. Moreover, once selected, each candidate fills one reserve position for each of her traits, rather than just one position for one of her traits. This makes the entire decision process more transparent for applicants and allows them to potentially utilize all their traits. I extend the approach of Sönmez and Yenmez (2019) who proposed a paired-admissions choice correspondence that works under no more than two traits. In turn, I allow for any number of traits focusing on extracting the best possible agents, such that the chosen set is non-wasteful, the most diverse, and eliminates collective justified envy. Two new, lower- and upper-dominant choice rules and a class of sum-minimizing choice correspondences are introduced and characterized. In Chapter 3, I implement optimization techniques for detecting the efficient trade off between ex-post Pareto efficiency (for one side of a two-sided matching market) and ex-ante stability for small one-to-one matching markets. Neat example (Roth, 1982) proves that there is no matching mechanism that achieves both efficiency (for one side of the one-to-one matching market) and stability. As representative mechanisms I choose deferred-acceptance for stability, and top trading cycles for Pareto efficiency (both of them are strategy-proof for one side of the market). I compare performances of a randomized matching mechanism that simultaneously relaxes efficiency and stability, and a convex combination of two representative mechanisms. Results show that the constructed mechanism significantly improves efficiency and stability in comparison to mentioned convex combination of the benchmark mechanisms. / Thesis (PhD) — Boston College, 2023. / Submitted to: Boston College. Graduate School of Arts and Sciences. / Discipline: Economics.

This thesis comprises four essays in the economics of networks and market design. The common thread in all these essays is the presence of complementarities or externalities. Chapter 2 presents a unified model of networks and matching markets. We build on a contribution by Pycia (2012). We show that strong pairwise alignment of agents’ preferences is a necessary and sufficient condition for the existence of strongly stable networks and strongly stable allocations in multilateral matching markets with finite contracts. Strongly stable networks are not necessarily efficient. Although we use a demanding stability concept, strong pairwise alignment allows for complementarities and externalities. In Chapter 3, we generalise the gross substitutes and complements condition introduced by Sun and Yang (2006). Our new condition guarantees the existence of competitive equilibrium in economies with indivisible goods. Competitive equilibrium can be found using an extension of the double-track adjustment process (Sun and Yang, 2009). In this chapter, we also study contract networks (Ostrovsky, 2008). We show that chain-stable contract allocations can exist even in cyclical contractual networks, such as electricity markets, as long as they are appropriately segmented. In Chapter 4, we run a series of experiments to compare the performance of four auctions – first-price, Vickrey, Vickrey-Nearest Rule (Day and Cramton, 2008), and Reference Rule (Erdil and Klemperer, 2010). In our setting, there are two items and three bidders. Two local bidders want an item each, but the global bidder wants both items. We introduce various exposure and package-bidding treatments. We find that the first-price auction always revenue-dominates all the other auctions without any loss in efficiency, strengthening the results of Marszalec (2011). Exposure affects global bidders only in the first-price auction. In other auctions, global bidders often do not take into account the effect of their own bids on their payments. We find no evidence of threshold effects. Finally, in Chapter 5, we develop a new model of online social network formation. In this model, agents belong to many overlapping social groups. We derive analytical solutions for the macroscopic properties of the network, such as the degree distribution. We study the dynamics of homophily – the tendency of individuals to associate with those similar to themselves. We calibrate our model to Facebook data from ten American colleges.

The future electricity grid is likely to be increasingly complex and uncertain due to the introduction of new technologies in the grid, the increased use of control and communication infrastructure, and the uncertain political climate. In recent years, the transactive energy market framework has emerged as the key framework for future electricity market design in the electricity grid. However, most of the work done in this area has focused on developing retail level transactive energy markets. There seems to be an underlying assumption that wholesale electricity markets are ready to support any retail market design. In this dissertation, we focus on designing wholesale electricity markets that can better support transactive retail market. On the highest level, this dissertation contributes towards developing tools and models for future electricity market designs. A particular focus is placed on the relationship between wholesale markets and investment planning. Part I of this dissertation uses relatively simple models and case studies to evaluate key impediments to flexible transmission operation. In doing so, we identify several potential areas of concern in wholesale market designs: 1. There is a lack of consideration of demand flexibility both in the long-run and in the short-run 2. There is a disconnect between operational practices and investment planning 3. There is a need to rethink forward markets to better manage resource adequacy under long-term uncertainties 4. There is a need for more robust modeling tools for wholesale market design In Part II and Part III of this dissertation, we make use of mathematical decomposition and agent-based simulations to tackle these concerns. Part II of this dissertation uses Benders Decomposition and Lagrangian Decomposition to spatially and temporally decompose a power system and operation problem with active participation of flexible loads. In doing so, we are able to not only improve the computational efficiency of the problem, but also gain various insights on market structure and pricing. In particular, the decomposition suggests the need for a coordinated investment market and forward energy market to bridge the disconnect between operational practices and investment planning. Part III of this dissertation combines agent-based modeling with state-machine based modeling to test various spot, forward, and investment market designs, including the coordinated investment market and forward energy market proposed in Part II of this dissertation. In addition, we test a forward energy market design where 75% of load is required to be purchased in a 2-year-ahead forward market and various transmission cost recovery strategies. We demonstrate how the different market designs result in different investment decisions, winners, and losers. The market insights lead to further policy recommendations and open questions. Overall, this dissertation takes initial steps towards demonstrating how mathematical decomposition and agent-based simulations can be used as part of a larger market design toolbox to gain insights into different market designs and rules for the future electricity grid. In addition, this dissertation identifies market design ideas for further studies, particularly in the design of forward markets and investment cost recovery mechanisms.

Cette thèse s'intéresse à plusieurs aspects des marchés de gros de l'électricité. L'achat et vente d'électricité se négocient sur les marchés à terme et sur le marché day-ahead. Sur ce dernier se pratique un type d'enchère très spécifique, où les enchères des acteurs prennent la forme de fonctions d'offre et de demande. Chapitre 2 prend comme point de départ un résultat de Zachmann et von Hirschhausen (2008) qui constatent une réponse asymétrique du prix de gros de l'électricité en Allemagne au changement du prix des permis d'émission négociable ( EUA ). Cependant, en contradiction avec les résultats existants, il est démontré que l'asymétrie a disparu suite à la publication d'un rapport d'enquête par l'autorité de la concurrence. Chapitre 3 porte sur l'interaction des marchés à terme et day-ahead dans un jeu d'oligopole répété. L'effet du marché à terme sur la stabilité des collusions est étudié dans le cas où les stratégies sur le marché spot prennent la forme des fonctions d'offre. Il est démontré que la simple existence d'un marché à terme peut élargir l'intervalle des valeurs du facteur d'actualisation pour lesquelles la collusion est soutenable. Chapitre 4 examine si une réaction asymétrique au changement du prix du C02 est également présente dans les fonctions d'offre du marché d'électricité day-ahead. À cette fin, les outils de l'analyse des données fonctionnelles sont adoptés et appliquées à des données des enchères. Chapitre 5 développe un test pour l'auto-corrélation dans un panel d'observations fonctionnelles. Une simulation Monte-Carlo montre une bonne puissance du test dans des échantillons de taille habituellement utilisé dans la recherche appliquée. / This thesis addresses aspects of interacting markets in electricity wholesale. Electricity is traded in forward markets and in day-ahead auctions, which implement a very specifie market design. The bids of market participants take the fonn of supply and demand functions. Chapter 2 builds upon a finding of Zachmann and von Hirschhausen (2008) who report an asymmetric response of electricity wholesale prices for Gennany to changes in the price of EV Emission Allowances (EVA). ln contrast to the fonner contribution, it is shown that the asymmetry disappeared in response to a report on investigations by the competition authority. Chapter 3 addresses the interaction offorward markets and day-ahead auctions in a repeated oligopoly game. The effect offorward trading on the sustainability of collusion is studied for the case that spot market strategies take the fonn of supply functions. It is shown that the existence of forward markets enlarges the range of discount factors for which collusion can be sustained. Chapter 4 examines if an asymmetric reaction to EVA prices can also be found in the supply functions from the day-ahead market. To this end, tools from the field of functionaJ data analysis are adopted and applied to observed bids from the day-ahead auction. Chapter 5 develops a test for autocorrelation in functional panel data. Asymptotic nonnality of the statistic is proved, and Monte-Carlo simulation sho\l good power of the test in sample sizes which frequently prevail in applied research.

The power balance of an electrical power system is crucial to the quality of the delivered electricity as well as the security of supply. In a scenario where Swedish nuclear power plants are being phased out and replaced by renewable energy sources new constraints are added to the power balance equation since the production of many renewable energy sources, such as wind and solar power, are intermittent by nature. This leads to a situation where the currently available regulating power might have difficulties to manage the increasing frequency fluctuations in the power grid. One possible solution to the problem is to build gas turbines for the purpose of peak power generation capacity. An alternative option would be to increase customer flexibility; that is Demand Response. This master thesis investigates how the market for Demand Respond can be designed and which potential Demand Response volumes different policy programs might release. This is done through a mixed approach. Firstly, a scientific review of previously documented Demand Response experiences compares and categorizes different Demand Response programs in a typology based on the parameters cost, volume and feasibility. Subsequently an interview series with different market agents, predominantly through interviews with the Swedish energy intensive industry, identifies the existing Demand Response potential in Sweden and offers the paradigm needed to transfer the results to a future hypothetical situation. The typology of Demand Response programs and estimation of the future industrial Demand Response potential in Sweden are the main new knowledge contributions of this master thesis. The scope however is limited to the Swedish market geographically and focuses on the time horizon 2020-2050. It is also assumed that only existing technologies are likely to be implemented on a large scale over the given time horizon. The results of this master thesis suggest that a Real Time Pricing model would realize the largest potential of Demand Response and to a relatively low cost. This solution however requires actions and further development of both the pricing model and in technology. Firstly, all market agents must have free access to real time price information, something that is lacking today. Secondly, a smart grid with hourly meters is required. If policymakers consider security of supply to be more important than a low system cost, Direct Control or a continuation of the Strategic Reserve is to be preferred according to the conclusions of this report. Previous studies have placed the existing potential for industrial Demand Response in Sweden between 600 and 900 MW. This report suggests that the available volume is in the upper region of the mentioned interval already today and has potential to rise significantly in the future as industries become more aware of the concept and the transmission grid is becoming more flexible. Another driving force for increased Demand Response volumes are the increased price fluctuations which are expected as a consequence of a greater share of renewable energy sources. For the future Demand Response potential, a cost perspective is introduced and a distinction between different response durations is made. More specifically the results indicate that the potential industrial Demand Response volume will be about 1,500 MW in 2030, given a response duration time of 4 h and a spot price on 2,000 SEK/MWh. If 1,500 MW of peak generation capacity could be avoided through active Demand Side Management, it would reduce the system cost with about 350 Million SEK annually. Consequently, there is a business case for Demand Response and the issue is likely to be subject to further investigation and discussion in the future. On the long term however industrial Demand Response must be compared with other flexibility options, e.g. as import/export or energy storages but also residential Demand Response, and is in such case likely to be outcompeted due to its relatively high variable cost of providing capacity.

Diplomová práce se zabývá analýzou mezinárodního úspěchu společnosti Starbucks. Příčiny tohoto bezprecedentního úspěchu jsou nejprve detekovány ve vnějších faktorech a v odvětví samotném. Následuje pozorování strategických kroků společnosti od založení až po mezinárodní expanzi a podrobná deskripce interních praktik společnosti. V analytické části je pak vymezen a aplikován model, který byl vyvinut na Bocconské univerzitě v Miláně. Jednotlivé předpoklady modelu jsou porovnávány s postupem společnosti Starbucks. Vyhodnocením shodností a odlišností reality a modelu se pak dochází k závěrům, které vysvětlují příčiny extrémně pozitivních výsledků společnosti Starbucks a její schopnosti přeměnit stagnující neatraktivní odvětví na lukrativní obor s vysokými maržemi.

This thesis first develops a range of wholesale water market design options, based on an optimisation approach to market-clearing, as in electricity markets, focusing on the extent to which uncertainty is accounted for in bidding, market-clearing and contract formation. We conclude that the most promising option is bidding for, and trading, a combination of fixed and proportionally scaled contract volumes, which are based on optimised outputs. Other options include those which are based on a post-clearing fit (e.g. regression) to the natural optimised outputs, or constraining the optimisation such that cleared allocations are in the contractual form required by participants. Alternatively, participants could rely on financial markets to trade instruments, but informed by a centralised market-clearing simulation. We then describe a computational modelling system, using Stochastic Constructive Dynamic Programming (CDDP), and use it to assess the importance of modelling uncertainty, and correlations, in reservoir optimisation and/or market-clearing, under a wide range of physical and economic assumptions, with or without a market. We discuss a number of bases of comparison, but focus on the benefit gain achieved as a proportion of the perfectly competitive market value (price times quantity), calculated using the market clearing price from Markov Chain optimisation. With inflow and demand completely out of phase, high inflow seasonality and volatility, and a constant elasticity of -0.5, the greatest contribution of stochastic (Markov) optimisation, as a proportion of market value was 29%, when storage capacity was only 25% of mean monthly inflow, and with effectively unlimited release capacity. This proportional gain fell only slowly for higher storage capacities, but nearly halved for lower release capacities, around the mean monthly inflow, mainly because highly constrained systems produce high prices, and hence raise market value. The highest absolute gain was actually when release capacity was only 75% of mean monthly inflow. On average, over a storage capacity range from 2% to 1200%, and release capacity range from 100% to 400%, times the mean monthly inflow, the gains from using Markov Chain and Stochastic Independent optimisation, rather than deterministic optimisation, were 18% and 13% of market value, respectively. As expected, the gains from stochastic optimisation rose rapidly for lower elasticities, and when vertical steps were added to the demand curve. But they became nearly negligible when (the absolute value of) elasticity rose to 0.75 and beyond, inflow was in-phase with demand, or the range of either seasonal variation or intra-month variability reduced to ±50% of the mean monthly inflow. Still, our results indicate that there are a wide range of reservoir and economic systems where accounting for uncertainty directly in the water allocation process could result in significant gains, whether in a centrally controlled or market context. Price and price risk, which affect individual participants, were significantly more sensitive. Our hope is that this work helps inform parties who are considering enhancing their water allocation practices with improved stochastic optimisation, and potentially market based mechanisms.

abstract: I study the design of two different institutions to evaluate the welfare implications of counterfactual policies. In particular, I analyze (i) the problem of assigning students to colleges (majors) in a centralized admission system; and (ii) an auction where the seller can use securities to determine winner’s payment, and bidders suffer negative externalities. In the former, I provide a novel methodology to evaluate counterfactual policies when the admission mechanism is manipulable. In the latter, I determine which instrument yields the highest expected revenue from the class of instruments that combines cash and equity payments. / Dissertation/Thesis / Doctoral Dissertation Economics 2017

Spain’s rapid implementation of renewable energy has been described as a success but thegovernmental cost associated to this rapid implementation has grown significantly. The purposeof this report is to investigate Spain’s electricity market, its current situation and present it, usingthe Swedish system as a reference.The report commences with a presentation of the Spanish and the Swedish electricity markets,followed by a chapter where they are compared. The renewable electricity production and theassociated development during the last decade is one focus of the comparison. The other focus ishow the costs of the subsidy systems have evolved and how they are connected to the differentenergy sources. Two sources, wind and solar, receives a higher interest than the others.Wind power shows a strong development in electricity production and contributes to asignificant part of the Spanish electricity mix. The costs of subsidies connected to the windpower reflect the produced electricity. Wind power in Sweden has had a rapid development overthe last two years and the subsidies costs are aligned with the electricity production through theuse of a quota system.There are great differences between the two countries regarding solar power. Sweden has hardlyany, while Spain has a noticeable contribution of electricity from solar power to its electricitymix. Solar power has an even more noticeable share in the Spanish subsidy system. The highsubsidies to solar power, which have not followed the reduced investment costs of equipment inrecent years, have led to a high degree of participation which has led to soaring costs for thesystem. Spain’s subsidy system is based on fixed earnings and variable costs and in combinationwith higher than expected costs, an annual deficit between the earnings and cost has been createdfor the government. This yearly deficit has increased and the Spanish government is now in debtto the five largest energy suppliers. The Swedish subsidy system carries its own costs and theSwedish government does not have a financial risk associated with the system.This study shows that the Spanish subsidy system has been too generous towards solar powerwhich is a large part, but not the only one, to the country’s huge deficit and debt. Sweden, withits quota system constructed without fixed earnings, does not risk creating a debt similar toSpain’s. Spain’s large part of wind power and how the volatile power is regulated could be ofinterest for Sweden which aims to increase its share of wind power in the future. This study findthe answer to how Spain copes with its high share of intermittent power production in that itaccepts a lower efficiency in its gas turbines in order to regulate the power output. Sweden, acountry without a large share of gas in its electricity mix, but with a large share of hydro power,uses its hydro capacity to regulate volatility in electricity system. Prior studies have already beenmade in this area with the result that 30 TWh of electricity from wind power, more thanSweden’s goal for 2020 regarding wind power, would be possible to regulate with the presentsystem each year.