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on Economic Design |
| By: | Olivier Bos; Martin Pollrich |
| Abstract: | We study optimal auctions in a symmetric private values setting, where bidders have signaling concerns: they care about winning the object and a receivers inference about their type. Signaling concerns arise in various economic situations such as takeover bidding, charity auctions, procurement and art auctions. We show that auction revenue can be decomposed into the standard revenue from the respective auction without signaling concern, and a signaling component. The latter is the bidders' ex-ante expected signaling value net of an endogenous outside option: the signaling value for the lowest type. The revenue decomposition restores revenue equivalence between different auction designs, provided that the same information about bids is revealed. Revealing information about submitted bids affects revenue via the endogenous outside option. In general, revenue is not monotone in information revelation: revealing more information about submitted bids may reduce revenue. We show that any bid disclosure rule allowing to distinguish whether a bidder submitted a bid or abstained from participation minimizes the outside option, and therefore maximizes revenue. |
| Keywords: | optimal auctions, revenue equivalence, Bayesian persuasion, information design |
| JEL: | D44 D82 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11723 |
| By: | Sebastian Schweighofer-Kodritsch; Roland Strausz |
| Abstract: | Casting mechanism design with evidence in the framework of Myerson (1982) implies that his generalized revelation principle directly applies, and we thus obtain standard notions of incentive compatible direct mechanisms. Their specific nature depends, however, on whether the presentation of evidence is controllable contractually. For deterministic implementation, we show that, in general, such control has value. We identify two independent conditions under which this value vanishes, one on evidence (WET) and another on preferences (TIWO). Allowing for fully stochastic mechanisms, we also characterize the (limited) extent to which the common assumption of evidentiary normality (NOR) negates any value of randomization. When NOR holds together with WET or TIWO, neither control nor randomization has any value. Many mechanism design settings satisfy these conditions naturally, implying that they are highly tractable. |
| Keywords: | mechanism design, revelation principle, evidence, verifiable iInformation, value of control, value of randomization. |
| JEL: | D82 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11794 |
| By: | Lawrence W. Abrams |
| Abstract: | The purpose of this paper is to apply the economics field of market design to develop a simple algebraic and graphic model of a combinatorial auction for formulary position assignments. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.02200 |
| By: | Burkhard C. Schipper; Tina Danting Zhang |
| Abstract: | We study dynamic decentralized two-sided matching in which players may encounter unanticipated experiences. As they become aware of these experiences, they may change their preferences over players on the other side of the market. Consequently, they may get ``divorced'' and rematch again with other agents, which may lead to further unanticipated experiences etc. A matching is stable if there is absence of pairwise common belief in blocking. Stable matchings can be destabilized by unanticipated experiences. Yet, we show that there exist self-confirming outcomes that are stable and do not lead to further unanticipated experiences. We introduce a natural decentralized matching process that, at each period assigns probability $1 - \varepsilon$ to the satisfaction of a mutual optimal blocking pair (if it exists) and picks any optimal blocking pair otherwise. The parameter $\varepsilon$ is interpreted as a friction of the matching market. We show that for any decentralized matching process, frictions are necessary for convergence to stability even without unawareness. Our process converges to self-confirming stable outcomes. Further, we allow for bilateral communication/flirting that changes the awareness and say that a matching is flirt-proof stable if there is absence of communication leading to pairwise common belief in blocking. We show that our natural decentralized matching process converges to flirt-proof self-confirming outcomes. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.01280 |
| By: | Jiayin Liu; Chenglong Zhang |
| Abstract: | Auctions are important mechanisms extensively implemented in various markets, e.g., search engines' keyword auctions, antique auctions, etc. Finding an optimal auction mechanism is extremely difficult due to the constraints of imperfect information, incentive compatibility (IC), and individual rationality (IR). In addition to the traditional economic methods, some recently attempted to find the optimal (single) auction using deep learning methods. Unlike those attempts focusing on single auctions, we develop deep learning methods for double auctions, where imperfect information exists on both the demand and supply sides. The previous attempts on single auction cannot directly apply to our contexts and those attempts additionally suffer from limited generalizability, inefficiency in ensuring the constraints, and learning fluctuations. We innovate in designing deep learning models for solving the more complex problem and additionally addressing the previous models' three limitations. Specifically, we achieve generalizability by leveraging a transformer-based architecture to model market participants as sequences for varying market sizes; we utilize the numerical features of the constraints and pre-treat them for a higher learning efficiency; we develop a gradient-conflict-elimination scheme to address the problem of learning fluctuation. Extensive experimental evaluations demonstrate the superiority of our approach to classical and machine learning baselines. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.05355 |
| By: | Sophie Bade |
| Abstract: | Roommate problems with convex preferences always have stable matchings. Efficiency and individual rationality are, moreover, compatible with strategyproofness in such convex roommate problems. Both of these results fail without the assumption of convexity. In the environment under study, preferences are convex if and only if they are single peaked. Any individually rational and convex roommate problem is homomorphic to a marriage market where an agent's gender corresponds to the direction of the agent's top-ranked partner. The existence of stable matchings then follows from the existence of stable matchings in marriage markets. To prove the second existence result, I define an efficient, individually rational, and strategyproof mechanism for convex roommate problems. To calculate outcomes, this mechanism starts with all agents being single and then gradually reassigns agents to better partners by performing minimal Pareto improvements. Whenever it becomes clear that some agent cannot be part of any further Pareto improvement, such an agent is matched. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.24010 |
| By: | Daniela Marchettini |
| Abstract: | In response to rising global government debt, sovereign debt management offices (DMOs) are increasingly refining their issuance methods to optimize investor engagement and minimize borrowing costs. This paper evaluates the effectiveness of a two-stage Treasury auction design that incorporates a supplementary non-competitive 'top-up' component, assessing its potential to enhance bidder performance. Utilizing detailed microdata from Italian Treasury bill auctions and employing a Difference-in-Differences analytical framework, the paper investigates how these supplementary top-up auctions influence bidder behavior in terms of requested quantities and offered prices during the main competitive auction. The analysis demonstrates that the introduction of top-ups promotes more aggressive bidding, especially among marginal bids, leading to higher cumulative bid values in the primary competitive phase. These findings suggest that top-up auctions can effectively boost auction coverage and may contribute to lower government borrowing costs by strategically shaping bidder incentives and behaviors. |
| Keywords: | Treasury Auctions; Topups; Primary Sovereign Debt Market; Debt Management. |
| Date: | 2025–04–04 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/069 |
| By: | Yue Yin |
| Abstract: | In online advertising systems, publishers often face a trade-off in information disclosure strategies: while disclosing more information can enhance efficiency by enabling optimal allocation of ad impressions, it may lose revenue potential by decreasing uncertainty among competing advertisers. Similar to other challenges in market design, understanding this trade-off is constrained by limited access to real-world data, leading researchers and practitioners to turn to simulation frameworks. The recent emergence of large language models (LLMs) offers a novel approach to simulations, providing human-like reasoning and adaptability without necessarily relying on explicit assumptions about agent behavior modeling. Despite their potential, existing frameworks have yet to integrate LLM-based agents for studying information asymmetry and signaling strategies, particularly in the context of auctions. To address this gap, we introduce InfoBid, a flexible simulation framework that leverages LLM agents to examine the effects of information disclosure strategies in multi-agent auction settings. Using GPT-4o, we implemented simulations of second-price auctions with diverse information schemas. The results reveal key insights into how signaling influences strategic behavior and auction outcomes, which align with both economic and social learning theories. Through InfoBid, we hope to foster the use of LLMs as proxies for human economic and social agents in empirical studies, enhancing our understanding of their capabilities and limitations. This work bridges the gap between theoretical market designs and practical applications, advancing research in market simulations, information design, and agent-based reasoning while offering a valuable tool for exploring the dynamics of digital economies. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.22726 |
| By: | Ciamac C. Moallemi; Mallesh M. Pai; Dan Robinson |
| Abstract: | In financial applications, latency advantages - the ability to make decisions later than others, even without the ability to see what others have done - can provide individual participants with an edge by allowing them to gather additional relevant information. For example, a trader who is able to act even milliseconds after another trader may receive information about changing prices on other exchanges that lets them make a profit at the expense of the latter. To better understand the economics of latency advantages, we consider a common-value auction with a reserve price in which some bidders may have more information about the value of the item than others, e.g., by bidding later. We provide a characterization of the equilibrium strategies and study the welfare and auctioneer revenue implications of the last-mover advantage. We show that the auction does not degenerate completely and that the seller is still able to capture some value. We study comparative statics of the equilibrium under different assumptions about the nature of the latency advantage. Under the assumptions of the Black-Scholes model, we derive formulas for the last mover's expected profit, as well as for the sensitivity of that profit to their timing advantage. We apply our results to the design of blockchain protocols that aim to run auctions for financial assets on-chain, where incentives to increase timing advantages can put pressure on the decentralization of the system. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.02077 |
| By: | Johanna Kangas; Janne S. Kotiaho; Markku Ollikainen |
| Abstract: | The European Union's Biodiversity Strategy sets an ambitious goal to increase the area of protected land and sea to 30% with 10% devoted to strict protection by 2030. The large land areas required to fulfil the conservation target and the quick schedule of implementation challenge both the current policy instruments and public funding for conservation. We introduce a deferrence mechanism for forest conservation by using procurement auctions. Deferring the conservation payments allows the government to conserve large areas in a quicker schedule and distributing the financial burden of conservation cost for a longer period of time. The deferred payments are paid an interest. The interest earning and an auction mechanism for downpayments strengthens the incentives for landowners to take part in conservation. We characterize the general properties of the mechanism and run numerical simulations to find that the deferrence mechanism facilitates a quick conservation of stands and thereby minimizes the loss of ecologically valuable sites caused by harvesting risks. The analysis suggests that keeping the lending period no longer than 10 years and paying a 3% interest rate provides a compromise that works rather well and outperforms the up-front mechanism in most cases. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.23955 |
| By: | Fang, Yuhan; Kawaguchi, Kohei |
| Abstract: | In response to growing privacy concerns, many browsers have implemented restrictions on third-party cookies and cross-site tracking in online advertising. Advertisers are concerned that such retargeting prohibition policies could lead to a reduction in ads' click probability, thereby affecting the bid values. This paper investigates the economic consequences of prohibiting retargeting in online advertising by analyzing data from a demand-side platform (DSP). Our analysis shows that the DSP's bid values for non-retargeted impressions on Google Chrome are more than 60\% lower than those for retargeted impressions. Yet this difference understates the true disparity in bid values, as retargeting status is observable only for internal auction winners. By modeling the internal auction process and estimating advertisers' valuations, we identify even larger differences between retargeted and non-retargeted impressions: 76.04% for Android and 71.40% for Windows. Our counterfactual simulations indicate that a complete ban on retargeting would substantially reduce expected bid values—by 30.06% for Android and 49.84% for Windows users. These results underscore the significant economic tradeoff between enhancing privacy protection and maintaining advertising market efficiency. |
| Date: | 2025–02–01 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:j34t8_v3 |
| By: | Burtraw, Dallas (Resources for the Future, Washington, DC, USA); Holt, Charles (University of Virginia, Charlottesville, VA, USA); Löfgren, Åsa (Department of Economics, School of Business, Economics and Law, Göteborg University); Shobe, William (University of Virginia, Charlottesville, VA, USA) |
| Abstract: | Many climate solutions including carbon dioxide removal (CDR) technologies require investments in capital intensive technologies that require large capacity investments and exhibit modest unit costs. Governments seeking to achieve net zero goals may invest directly in CDR to procure negative emissions credits to offset emissions in hard-to-abate sectors such as agriculture. In a procurement auction for a declining cost industry, the optimal allocation will generally require all winning bidders operating at full capacity. Because of the lumpy nature of investments, this may not fit within the government’s budget, leaving one or more winning bidders at the margin, operating at less than full capacity, and consequently with higher average costs. Protection can be provided to the marginal bidder by letting bids specify a range of acceptable quantities up to full capacity. The auction can be executed with sealed bids (specifying prices with associated minimum quantities) or by having the proposed bid price be lowered sequentially in a “clock auction” with quantity intervals specified by bidders at the current clock price. We consider the performance of sealed bid and clock auctions, in the presence of 1) a fixed government procurement budget, 2) “common value” uncertainty about the true per-unit production cost, and 3) the presence of a large, fixed cost. Laboratory experiment simulations with financially motivated human subjects are valuable for testing and developing auction designs that have never been used before, without relying on theoretical properties that depend on strong assumptions of perfect cost information and “truthful bidding.” Preliminary experiment results indicate that winner’s curse effects (bidder losses) are infrequent in both auction formats (clock and sealed bid), but the clock tends to restrict bidder profits in a manner that reduces the average cost for the buyer of the “units” representing CDR. Our experiments are informed by the projected use of auctions by the government of Sweden to procure carbon capture and sequestration from its domestic wood products and energy industry. |
| Keywords: | Carbon dioxide removal (CDR); Procurement auctions; Common value uncertainty; Capital-intensive technologies |
| JEL: | C92 D44 H57 Q54 Q55 Q58 |
| Date: | 2025–04–28 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:gunwpe:0854 |
| By: | Raffaele Berzi; Daniela Bubboloni; Michele Gori |
| Abstract: | We study the manipulability of social choice correspondences in situations where individuals have incomplete information about others' preferences. We propose a general concept of manipulability that depends on the extension rule used to derive preferences over sets of alternatives from preferences over alternatives, as well as on individuals' level of information. We then focus on the manipulability of social choice correspondences when the Kelly extension rule is used, and individuals are assumed to have the capability to anticipate the outcome of the collective decision. Under these assumptions, we introduce some monotonicity properties of social choice correspondences whose combined satisfaction is sufficient for manipulability, prove a result of manipulability for unanimous positional social choice correspondences, and present a detailed analysis of the manipulability properties for the Borda, the Plurality and the Negative Plurality social choice correspondences. |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2503.23141 |
| By: | Jeffrey Mensch |
| Abstract: | When is random choice generated by a decision maker (DM) who is Bayesian-persuaded by a sender? In this paper, I consider a DM whose state-dependent preferences are known to an analyst, yet chooses stochastically as a function of the state. I provide necessary and sufficient conditions for the dataset to be consistent with the DM being Bayesian persuaded by an unobserved sender who generates a distribution of signals to ex-ante optimize the sender's expected payoff. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.01829 |