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on Economic Design |
| By: | Kym Pram; Burkhard C. Schipper (Department of Economics, University of California Davis) |
| Abstract: | We study the design of efficient mechanisms under asymmetric awareness and information. Unawareness refers to the lack of conception rather than the lack of information. Assuming quasi-linear utilities and private values, we show that we can implement in conditional dominant strategies a social choice function that is utilitarian ex-post efficient when pooling all awareness of all agents without the need of the social planner being fully aware ex-ante. To this end, we develop novel dynamic versions of Vickrey-Clarke-Groves mechanisms in which types are revealed and subsequently elaborated at endogenous higher awareness levels. We explore how asymmetric awareness affects budget balance and participation constraints. We show that ex-ante unforeseen contingencies are no excuse for deficits. Finally, we propose a modified reverse second price auction for efficient procurement of complex incompletely specified projects. |
| Keywords: | dynamic mechanism design, VCG mechanisms, auctions versus negotiations, unknown unknowns, complex projects |
| JEL: | D83 |
| Date: | 2025–04–05 |
| URL: | https://d.repec.org/n?u=RePEc:cda:wpaper:372 |
| By: | Narvin Kartik; Andreas Kleiner |
| Abstract: | For multidimensional Euclidean type spaces, we study convex choice: from any choice set, the set of types that make the same choice is convex. We establish that, in a suitable sense, this property characterizes the sufficiency of local incentive constraints. Convex choice is also of interest more broadly, e.g., in cheaptalk games. We tie convex choice to a notion of directional single-crossing differences (DSCD). For an expected-utility agent choosing among lotteries, DSCD implies that preferences are either one-dimensional or must take the affine form that has been tractable in multidimensional mechanism design. |
| Keywords: | single crossing; incentive compatibility; mechanism design; cheap talk |
| JEL: | D82 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_676 |
| By: | Martimort, David; Poudou, Jean-Christophe; Thomas, Lionel |
| Abstract: | A buyer (the principal) procures a good or service from a risk-neutral seller (the agent). The seller, protected by limited liability, has private information on his marginal cost of production (adverse selection), and exerts a non-verifiable effort that increases surplus (moral hazard). Even when the effort and production technologies are separable, the optimal contract always mixes features that are found separately under with pure moral hazard or pure screening. Screening distortions are mitigated in comparison with the pure screening scenario with the possibility of bunching for the least efficient types even in contexts where full separation would be obtained with pure screening. Effort distortions are also used as a screening device. In comparison with a pure moral hazard scenario, those distortions may be lessened for the most efficient types, up to the point of possibly allowing implementation of the first-best effort, while they are worsened for the worst types. Although our analysis is cast in a simple procurement setting, we illustrate our findings in other economic environments of general interest including economic and environmental regulation, financial contracting, provision of quality in services, and price discrimination. |
| Keywords: | Adverse selection; moral hazard; contract theory |
| JEL: | D82 |
| Date: | 2025–03–11 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130428 |