A Market-Based Mechanism for Allocating Space Shuttle Secondary Payload Priority (Published in _Experimental Economics_, 2(3): 173-195, March 2000.)

John Ledyard, Division of Humanities and Social Sciences, California Institute of Technology
David Porter, Economic Science Laboratory, University of Arizona
Randii Wessen, Systems Division, Jet Propulsion Laboratory

This is an investigation into the design of a market-based process to replace NASA's current committee process for allocating Shuttle secondary payload resources (lockers,Watts and crew). The market-based process allocates budgets of tokens to NASA internal organizations that in turn use the budget to bid for priority for their middeck payloads. The scheduling algorithm selects payloads by priority class and maximizes the number of tokens bid to determine a manifest. The results of a number of controlled experiments show that such a system tends to allocate resources more efficiently by guiding participants to make resource and payload tradeoffs. Most participants were able to improve their position over NASA's current ranking system. Furthermore, those that are better off make large improvements while the few that do worse have relatively small losses.

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Inducing Liquidity In Thin Financial Markets Through Combined-Value Trading Mechanisms (Published in _European Economics Review_, 46(9): 1671-1695, October 2002.)

John Ledyard, Division of Humanities and Social Sciences, California Institute of Technology
Peter Bossaerts, Center for Economic Policy Research
Leslie Fine, Hewlett Packard

Asset pricing theory hypothesizes that investors are only interested in portfolios; individual securities are evaluated only in terms of their contribution to portfolio riskand return. Yet, standard financial market design is that of parallel, unconnected markets, whereby investors cannot submit orders in one market conditional on events in others. When markets are thin, this exposes them to substantial execution risk. Fear of ending up with unbalanced portfolios after trading may even keep investors from submitting orders, further eroding liquidity and the ability of markets to equilibrate. The suggested solution is a portfolio trading mechanism referred to as combined-value trading (CVT). Investors are allowed to submit orders for packages of securities and the system matches trades and computes prices by optimally combining portfolio orders in an open book. We study the performance of the CVT mechanism experimentally and compare it to the performance of parallel, unconnected double auctions in experiments with similar parametrization and either a similar number of subjects or substantially thicker markets. We present evidence that our portfolio trading mechanism facilitates equilibration to the extent that the thicker markets do. Inspection of order submission and trade activity reveals that subjects manage to exploit the direct linkages between markets enabled by the CVT system.

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