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on Contract Theory and Applications |
| By: | Sara Biancini; David Ettinger |
| Abstract: | We consider a framework in which both a principal and an agent care about a social mission, such as addressing social or environmental concerns. The agent requires financing and must satisfy a budget constraint. Under incomplete information, in addition to the usual quantity distortions for inefficient agents, the principal also distorts the mission upward for efficient agents and downward for inefficient ones. In our context, the existence of hidden types may improve total welfare compared to complete information, as screening incentivizes the principal to propose a contract with a higher mission to reduce the rent of more efficient types. Our results apply to social enterprises and triple bottom line environments, contributing to the theoretical understanding of the impact of non-financial incentives on optimal contracting. |
| Keywords: | impact investment, mission motivation, incentives, social enterprises, corporate social responsibility |
| JEL: | D21 L21 L31 D82 M14 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11923 |
| By: | Leonardo Baggiani; Martin Herdegen; Leandro S\'anchez-Betancourt |
| Abstract: | Automated Market Makers (AMMs) are emerging as a popular decentralised trading platform. In this work, we determine the optimal dynamic fees in a constant function market maker. We find approximate closed-form solutions to the control problem and study the optimal fee structure. We find that there are two distinct fee regimes: one in which the AMM imposes higher fees to deter arbitrageurs, and another where fees are lowered to increase volatility and attract noise traders. Our results also show that dynamic fees that are linear in inventory and are sensitive to changes in the external price are a good approximation of the optimal fee structure and thus constitute suitable candidates when designing fees for AMMs. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.02869 |
| By: | Halil I. Bayrak; Martin Bichler |
| Abstract: | Mechanism design with inspection has received increasing attention due to its applications in the field. For example, large warehouses have started to auction scarce capacity. This capacity shall be allocated in a way that maximizes the seller's revenue. In such mechanism design problems, the seller can inspect the true value of a buyer and his realized sales in the next period without cost. Prior work on mechanism design with deferred inspection is based on the assumption of a common prior distribution. We design a mechanism with a deferred inspection that is (distributionally) robustly optimal either when the ambiguity-averse mechanism designer wants to maximize her worst-case expected payoff or when she wants to minimize her worst-case expected regret. It is a relatively simple mechanism with a concave allocation and linear payment rules. We also propose another robustly optimal mechanism that has the same concave allocation function but extracts the maximal payment from all the types of the agent, which can have a strictly higher expected payoff under non-worst-case distributions compared to the robustly optimal mechanism with the linear payment rule. We show that multi-bidder monotonous mechanisms might not exist. |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2506.04767 |