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on Economic Design |
| By: | Basteck, Christian; Ehlers, Lars |
| JEL: | C70 D63 D82 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302429 |
| By: | Joseph Feffer |
| Abstract: | This paper studies a simplicity notion in a mechanism design setting in which agents do not necessarily share a common prior. I develop a model in which agents participate in a prior-free game of (coarse) information acquisition followed by an auction. After acquiring information, the agents have uncertainty about the environment in which they play and about their opponents' higher-order beliefs. A mechanism admits a coarse beliefs equilibrium if agents can play best responses even with this uncertainty. Focusing on multidimensional scoring auctions, I fully characterize a property that allows an auction format to admit coarse beliefs equilibria. The main result classifies auctions into two sets: those in which agents learn relatively little about their setting versus those in which they must fully learn a type distribution to form equilibrium strategies. I then find a simple, primitive condition on the auction's rules to distinguish between these two classes. I then use the condition to categorize real-world scoring auctions by their strategic simplicity. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.06150 |
| By: | Aadityan Ganesh; Clayton Thomas; S. Matthew Weinberg |
| Abstract: | Transaction Fee Mechanism Design studies auctions run by untrusted miners for transaction inclusion in a blockchain. Under previously-considered desiderata, an auction is considered `good' if, informally-speaking, each party (i.e., the miner, the users, and coalitions of both miners and users) has no incentive to deviate from the fixed and pre-determined protocol. In this paper, we propose a novel desideratum for transaction fee mechanisms. We say that a TFM is off-chain influence proof when the miner cannot achieve additional revenue by running a separate auction off-chain. While the previously-highlighted EIP-1559 is the gold-standard according to prior desiderata, we show that it does not satisfy off-chain influence proofness. Intuitively, this holds because a Bayesian revenue-maximizing miner can strictly increase profits by persuasively threatening to censor any bids that do not transfer a tip directly to the miner off-chain. On the other hand, we reconsider the Cryptographic (multi-party computation assisted) Second Price Auction mechanism, which is technically not `simple for miners' according to previous desiderata (since miners may wish to set a reserve by fabricating bids). We show that, in a slightly different model where the miner is allowed to set the reserve directly, this auction satisfies simplicity for users and miners, and off-chain influence proofness. Finally, we prove a strong impossibility result: no mechanism satisfies all previously-considered properties along with off-chain influence proofness, even with unlimited supply, and even after soliciting input from the miner. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.07566 |
| By: | Federica Carannante (Princeton University); Marco Pagnozzi (Università di Napoli Federico II and CSEF); Elia Sartori (CSEF) |
| Abstract: | We study the interim seller’s revenue — the expected revenue conditional on the valuation of one bidder — in a class of sealed-bid auctions that are ex-ante equivalent by the Revenue Equivalence Theorem. Interim revenue differences across auction formats depend on the expected transfer of a generic bidder conditional on a competitor’s valuation. The first-price auction yields higher (lower) interim revenue than the second-price auction if the valuation is below (above) a threshold. At the lowest possible valuation, the first-price auction also yields the highest interim revenue among all standard auctions. By contrast, at high valuations the first-price auction yields the lowest interim revenue, while the last-pay auction — an atypical mechanism where only the lowest bidder pays — allows the seller to extract arbitrarily large revenues. |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:sef:csefwp:728 |
| By: | Javier Cembrano; Max Klimm; Martin Knaack |
| Abstract: | This paper considers a scenario within the field of mechanism design without money where a mechanism designer is interested in selecting items with maximum total value under a knapsack constraint. The items, however, are controlled by strategic agents who aim to maximize the total value of their items in the knapsack. This is a natural setting, e.g., when agencies select projects for funding, companies select products for sale in their shops, or hospitals schedule MRI scans for the day. A mechanism governing the packing of the knapsack is strategyproof if no agent can benefit from hiding items controlled by them to the mechanism. We are interested in mechanisms that are strategyproof and $\alpha$-approximate in the sense that they always approximate the maximum value of the knapsack by a factor of $\alpha \in [0, 1]$. First, we give a deterministic mechanism that is $\frac{1}{3}$-approximate. For the special case where all items have unit density, we design a $\frac{1}{\phi}$-approximate mechanism where $1/\phi \approx 0.618$ is the inverse of the golden ratio. This result is tight as we show that no deterministic strategyproof mechanism with a better approximation exists. We further give randomized mechanisms with approximation guarantees of $1/2$ for the general case and $2/3$ for the case of unit densities. For both cases, no strategyproof mechanism can achieve an approximation guarantee better than $1/(5\phi -7)\approx 0.917$. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.06080 |
| By: | Zhu Mingxi; Song Michelle |
| Abstract: | Bidding is a key element of search advertising, but the variation in bidders' valuations and strategies is often overlooked. Disclosing bid information helps uncover this heterogeneity and enables platforms to tailor their disclosure policies to meet objectives like increasing consumer surplus or platform revenue. We analyzed data from a platform that provided bid recommendations based on historical bids. Our findings reveal that advertisers vary significantly in their strategies: some follow the platform's recommendations, while others create their own bids, deviating from the provided information. This highlights the need for customized information disclosure policies in online ad marketplaces. We developed an equilibrium model for Generalized Second Price (GSP) auctions, showing that adhering to bid recommendations with positive probability is suboptimal. We categorized advertisers as bid-adhering or bid-constructing and developed a structural model for self-bidding to identify private valuations. This model allowed for a counterfactual analysis of the impact of different levels of information disclosure. Both theoretical and empirical results suggest that moderate increases in disclosure improve platform revenue and market efficiency. Understanding bidder diversity is crucial for platforms, which can design more effective disclosure policies to address varying bidder needs and achieve their goals through costless information sharing. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.05535 |
| By: | Santiago Izquierdo-Tort (Universidad Nacional Autonoma de Mexico); Seema Jayachandran (Princeton University); Santiago Saavedra (Universidad del Rosario) |
| Abstract: | Payments for Ecosystem Services (PES) are a widely used approach to incentivize conservation efforts such as avoided deforestation. Although PES effectiveness has received significant scholarly attention, whether PES design modifications can improve program outcomes is less explored. We present findings from a randomized trial in Mexico that tested whether a PES contract that requires enrollees to enroll all of their forest is more effective than the traditional PES contract that allows them to exercise choice. The modification’s aim is to prevent landowners from enrolling only parcels they planned to conserve anyway while leaving aside other parcels to deforest. We find that the full-enrollment treatment significantly reduces deforestation compared to the traditional contract. This extra conservation occurs despite the full-enrollment provision reducing the compliance rate due to its more stringent requirements. The full-enrollment treatment quadrupled cost-effectiveness, highlighting the potential to substantially improve the efficacy of conservation payments through simple contract modifications. |
| Keywords: | Deforestation, Payments for Ecosystem Services, financial incentives, contract design, Mexico |
| JEL: | O13 Q23 Q56 Q57 |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:pri:cepsud:325 |
| By: | Axel Niemeyer; Justus Preusser |
| Abstract: | We study allocation problems without monetary transfers where agents hold private information about one another, modeled as a general form of correlated information. Such peer information is relevant in a number of settings, including science funding, allocation of targeted aid, or intra-firm allocation. We characterize optimal dominant-strategy incentive-compatible (DIC) mechanisms using techniques from the theory of perfect graphs. Optimal DIC mechanisms tend to be complex and involve allocation lotteries that cannot be purified without upsetting incentives. In rich type spaces, nearly all extreme points of the set of DIC mechanisms are stochastic. Finding an optimal deterministic DIC mechanism is NP-hard. We propose the simple class of ranking-based mechanisms and show that they are approximately optimal when agents are informationally small. These mechanisms allocate to agents ranked highly by their peers but strategically deny the allocation to agents suspected of having evaluated their peers dishonestly. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.08954 |
| By: | Tao Lin; Ce Li |
| Abstract: | Classical information design models (e.g., Bayesian persuasion and cheap talk) require players to have perfect knowledge of the prior distribution of the state of the world. Our paper studies repeated persuasion problems in which the information designer does not know the prior. The information designer learns to design signaling schemes from repeated interactions with the receiver. We design learning algorithms for the information designer to achieve no regret compared to using the optimal signaling scheme with known prior, under two models of the receiver's decision-making. (1) The first model assumes that the receiver knows the prior and can perform posterior update and best respond to signals. In this model, we design a learning algorithm for the information designer with $O(\log T)$ regret in the general case, and another algorithm with $\Theta(\log \log T)$ regret in the case where the receiver has only two actions. (2) The second model assumes that the receiver does not know the prior and employs a no-regret learning algorithm to take actions. We show that the information designer can achieve regret $O(\sqrt{\mathrm{rReg}(T) T})$, where $\mathrm{rReg}(T)=o(T)$ is an upper bound on the receiver's learning regret. Our work thus provides a learning foundation for the problem of information design with unknown prior. |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2410.05533 |
| By: | Rim Berahab |
| Abstract: | Carbon pricing mechanisms are central to mitigating climate change. These mechanisms work by internalizing the costs associated with greenhouse gas emissions, thus encouraging emissions reductions and promoting technological progress in favor of sustainable alternatives. However, the implementation of carbon pricing mechanisms faces numerous complexities and challenges, especially in developing countries, given the potentially regressive impact of carbon pricing on low-income groups, and the general lack of socio- political support. This policy paper offers a comparative review of two market-based carbon pricing strategies—carbon taxes and emissions trading systems (ETS)—to shed light on their effectiveness, implementation, and capacity to generate revenue. It also argues that carbon pricing should be integrated into a comprehensive policy framework that addresses both national priorities and international equity considerations, in order to effectively address global climate change. The effectiveness of these policies depends largely on their design and adaptation to the specific political and economic contexts in which they are implemented. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:ocp:rpcoen:pp_07-24 |
| By: | Emir Kamenica (University of Chicago); Xiao Lin (University of Pennsylvania) |
| Abstract: | When does a Sender, in a Sender-Receiver game, strictly value commitment? In a setting with finite actions and finite states, we establish that, generically, Sender values commitment if and only if he values randomization. In other words, commitment has no value if and only if a partitional experiment is optimal under commitment. Moreover, if Sender’s preferred cheap-talk equilibrium necessarily involves randomization, then Sender values commitment. We also ask: how often (i.e., for what share of preference profiles) does commitment have no value? For any prior, any independent, atomless distribution of preferences, and any state space: if there are |A| actions, the likelihood that commitment has no value is at least 1 |A||A| . As the number of states grows large, this likelihood converges precisely to 1 |A||A| . |
| Keywords: | Bayesian persuasion; cheap talk |
| JEL: | D80 D83 |
| Date: | 2024–10–01 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:24-033 |
| By: | Meisner, Vincent; Pillath, Pascal |
| JEL: | D82 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:vfsc24:302417 |
| By: | Vasily Gusev (National Research University Higher School of Economics); Iakov Zhukov (National Research University Higher School of Economics) |
| Abstract: | This paper investigates two approaches to determining the leader of a coalition partition: the individual and the collective. In the first approach, each coalition in the partition chooses a representative, and then the leader is chosen from among all the representatives. In the second approach, the leading coalition in the partition is chosen, and then the leader from among members of that coalition is chosen. The leader and the leading coalition are chosen with a certain probability, which is guided by the weight rule or the ranking rule. Both approaches can be encountered in contests, sports competitions, and political elections. The paper delivers results on the existence of Nash-stable partitions depending on the approach and the probability of determining the leader. Cases where the number of coalitions in the partition is fixed and arbitrary are studied. The existence of an equilibrium in weakly dominant strategies is proved for the collective approach and the weight rule, and the necessary and sufficient conditions for a Nash-stable partition to exist were found for the ranking rule. The sufficient conditions for a Nash-stable partition to exist were found for the individual approach and the corresponding probabilistic rules |
| Keywords: | coalitionformation, leaderproblem, Nashstability |
| JEL: | Z |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hig:wpaper:268/ec/2024 |