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on Economic Design |
| By: | Albin Erlanson; Andreas Kleiner |
| Abstract: | A principal has m identical objects to allocate among a group of n agents. Objects are desirable and the principal's value of assigning an object to an agent is the agent's private information. The principal can verify up to k agents, where k |
| Keywords: | Mechanism Design with Evidence; Allocations; Verification |
| JEL: | D82 D71 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_630 |
| By: | Wenqian Wang; Zhiwen Zheng |
| Abstract: | Recent literature highlights the advantages of implementing social rules via dynamic game forms. We characterize when truth-telling remains a dominant strategy in gradual mechanisms implementing strategy-proof social rules, where agents gradually reveal their private information while acquiring information about others in the process. Our first characterization hinges on the incentive-preservation of a basic transformation on gradual mechanisms called illuminating that partitions information sets. The second relies on a single reaction-proofness condition. We demonstrate the usefulness of both characterizations through applications to second-price auctions and the top-trading cycles algorithm. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.08802 |
| By: | S. Nageeb Ali; Andreas Kleiner; Kun Zhang |
| Abstract: | This paper studies games of voluntary disclosure in which a sender discloses evidence to a receiver who then offers an allocation and transfers. We characterize the set of equilibrium payoffs in this setting. Our main result establishes that any payoff profile that can be achieved through information design can also be supported by an equilibrium of the disclosure game. Hence, our analysis suggests an equivalence between disclosure and design in these settings. We apply our results to monopoly pricing, bargaining over policies, and insurance markets. |
| Keywords: | voluntary disclosure, evidence games |
| JEL: | D82 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_632 |
| By: | Filippo Cavaleri (University of Chicago - Booth School of Business; University of Chicago - Department of Economics); Angelo Ranaldo (University of Basel - Faculty of Business and Economics; Swiss Finance Institute; University of St. Gallen); Enzo Rossi (Swiss National Bank; University of Zurich) |
| Abstract: | This paper examines how heterogeneity in investment horizons determines the demand for safe assets, bidding strategies in auctions, and post-auction price dynamics. We model a uniformprice double auction with resale where long-term investors hold assets to maturity, while dealer banks distribute the asset in secondary markets. Pure private (common) values emerge when only long-term investors (dealers) participate. Using unique data on Swiss Treasury bond auctions revealing bidders' identities, our empirical findings support key predictions: (1) substantial heterogeneity in demand schedules, with steeper demand curves for dealer banks; (2) Dealer banks' demand becomes steeper with increased demand risk and bid dispersion; and (3) demand elasticity positively predicts post-auction returns. |
| Keywords: | auction, asset demand, safe asset, private and common values, government bonds |
| JEL: | D44 G12 D82 G14 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:chf:rpseri:rp24110 |
| By: | Thibaut Mastrolia; Tianrui Xu |
| Abstract: | This study explores the design of an efficient rebate policy in auction markets, focusing on a continuous-time setting with competition among market participants. In this model, a stock exchange collects transaction fees from auction investors executing block trades to buy or sell a risky asset, then redistributes these fees as rebates to competing market makers submitting limit orders. Market makers influence both the price at which the asset trades and their arrival intensity in the auction. We frame this problem as a principal-multi-agent problem and provide necessary and sufficient conditions to characterize the Nash equilibrium among market makers. The exchange's optimization problem is formulated as a high-dimensional Hamilton-Jacobi-Bellman equation with Poisson jump processes, which is solved using a verification result. To numerically compute the optimal rebate and transaction fee policies, we apply the Deep BSDE method. Our results show that optimal transaction fees and rebate structures improve market efficiency by narrowing the spread between the auction clearing price and the asset's fundamental value, while ensuring a minimal gain for both market makers indexed on the price of the asset on a coexisting limit order book. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.12591 |
| By: | Wataru Tamura |
| Abstract: | This paper examines the optimal design of information sharing in organizations. Organizational performance depends on agents adapting to uncertain external environments while coordinating their actions, where coordination incentives and synergies are modeled as graphs (networks). The equilibrium strategies and the principal's objective function are summarized using Laplacian matrices of these graphs. I formulate a Bayesian persuasion problem to determine the optimal public signal and show that it comprises a set of statistics on local states, necessarily including their average, which serves as the organizational goal. When the principal benefits equally from the coordination of any two agents, the choice of disclosed statistics is based on the Laplacian eigenvectors and eigenvalues of the incentive graph. The algebraic connectivity (the second smallest Laplacian eigenvalue) determines the condition for full revelation, while the Laplacian spectral radius (the largest Laplacian eigenvalue) establishes the condition for minimum transparency, where only the average state is disclosed. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.12669 |
| By: | Gorkem Celik (ESSEC); Strausz Roland (HU Berlin) |
| Abstract: | We study monopolistic certification in a buyer-seller relationship, explicitly distinguishing between its role as a device for screening versus acquisition. As a screening device, certification discloses soft information about a seller's private information. As an acquistion device, certification discloses hard information about the good's quality. Despite being costless, we show that, optimally, a monopolistic certifier provides non-maximal information-acquisition, while offering maximal screening. Thus, monopolistic certification exhibits no economic distortions as a screening device, resolving all private information, but provides too little hard information as an acquisition device. While feasible and costless, full information acquisition is suboptimal as it requires excessive information rents. Consequently, market inefficiencies remain due to market uncertainty but not due to private information. |
| Keywords: | certification; disclosure; screening; information acquisition; monopolistic distortions; |
| JEL: | D82 |
| Date: | 2025–01–29 |
| URL: | https://d.repec.org/n?u=RePEc:rco:dpaper:525 |
| By: | Teddy Mekonnen |
| Abstract: | I consider a two-sided frictional search market where buyers search and match to vertically differentiated sellers. The market is segmented into submarkets based on seller types, with segmentation serving as a public signal that directs buyers' search. I characterize the socially efficient and equilibrium allocations of buyers across submarkets for any fixed segmentation, and identify a Hosios condition under which the equilibrium allocation is efficient. I further examine the design of surplus-maximizing segmentations, demonstrating the role of congestion externalities in determining whether the constrained-efficient segmentation fully reveals seller types or pools types into at most a binary partition. These results clarify the conditions under which the provision of public information is welfare enhancing in search markets with externalities. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.11753 |