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on Economic Design |
| By: | Jun Nakabayashi; Juan M. Ortner; Sylvain Chassang; Kei Kawai |
| Abstract: | Auctioneers suspecting bidder collusion often lack the formal evidence needed for legal recourse. A practical alternative is to design auctions that hinder collusion. Since Abreu et al. (1986), economic theory has emphasized imperfect monitoring as a constraint on collusion, but evidence remains scarce on whether: (i) information frictions meaningfully limit real-world collusion; and (ii) auctioneers can effectively exploit these frictions. Indeed, transparency concerns often prevent the introduction of explicit randomness in auction design. We make progress on this issue by studying the impact of subjective scoring in auctions run by Japan’s Ministry of Land, Infrastructure, and Transportation. The adoption of scoring auctions significantly reduced winning bids in ways inconsistent with competition. Model-based inference suggests that the cartel’s dynamic obedience constraints were binding and were tightened by imperfect monitoring. Subjective scoring can successfully leverage imperfect monitoring frictions to reduce the scope of collusion. |
| JEL: | C57 C72 D44 L41 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33668 |
| By: | Kym Pram; Burkhard C. Schipper |
| 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. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.04382 |
| By: | Kunimoto, Takashi (Singapore Management University); Saran, Rene (University of Cincinnati, Cincinnati,); Serrano, Roberto (Brown University) |
| Abstract: | When the normative goals for a set of agents can be summarized in a set-valued rule and agents take actions that are rationalizable, a new theory of incentives emerges in which standard Bayesian incentive compatibility (BIC) is relaxed significantly. The paper studies the interim rationalizable implementation of social choice sets with a Cartesian product structure, a leading example thereof being ex-post efficiency. Setwise incentive compatibility (setwise IC), much weaker than BIC, is shown to be necessary for implementation. Setwise IC enforces incentives flexibly within the entire correspondence, instead of the pointwise enforcement entailed by BIC. Sufficient conditions, while based on the existence of SCFs in the correspondence that make truthful revelation a dominant strategy, are shown to be permissive to allow the implementation of ex-post efficiency in many settings where equilibrium implementation fails (e.g., bilateral trading, multidimensional signals). Furthermore, this success comes at little cost: all our mechanisms are well behaved, in the sense that best responses always exist. |
| Keywords: | rationalizability; implementation; correspondences; setwise incentive compatibility; setwise dominance; ex-post efficiency |
| JEL: | C72 D78 D82 |
| Date: | 2025–05–02 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:2025_002 |
| By: | Kunimoto, Takashi (Singapore Management University); Zhang, Cuiling (Singapore Management University) |
| Abstract: | Efficient, voluntary bilateral trades are generally not implementable in an interdependent values environment where agents’ information is ex ante symmetric (i.e., both parties have private information and each party’s valuation depends on the other’s information in the same way). Thus, we seek more positive results by employing two-stage mechanisms in which (i) the outcome (e.g., allocation of the goods) is determined first; (ii) the agents partially learn the state via their own outcome-decision payoffs; and (iii) transfers are finally made. We propose the approximate shoot-the-liar (AS) mechanism and generalized shoot-the-liar (GS) mechanism and identify mild conditions for each mechanism to have the desired properties. The AS mechanism ensures “approximately” efficient, voluntary trades. We also establish that if we ensure (exactly) efficient, voluntary trades, there is no loss of generality in focusing on the GS mechanism. We then identify a necessary and sufficient condition for the GS mechanism to implement efficient, voluntary trades. |
| Keywords: | bilateral trade; interdependent values; two-stage mechanisms |
| JEL: | C72 D78 D82 |
| Date: | 2025–01–01 |
| URL: | https://d.repec.org/n?u=RePEc:ris:smuesw:2025_001 |
| By: | Tzeh Yuan Neoh; Nicholas Teh |
| Abstract: | Envy-freeness up to any good (EFX) is a popular and important fairness property in the fair allocation of indivisible goods, of which its existence in general is still an open question. In this work, we investigate the problem of determining the minimum number of EFX allocations for a given instance, arguing that this approach may yield valuable insights into the existence and computation of EFX allocations. We focus on restricted instances where the number of goods slightly exceeds the number of agents, and extend our analysis to weighted EFX (WEFX) and a novel variant of EFX for general monotone valuations, termed EFX+. In doing so, we identify the transition threshold for the existence of allocations satisfying these fairness notions. Notably, we resolve open problems regarding WEFX by proving polynomial-time computability under binary additive valuations, and establishing the first constant-factor approximation for two agents. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.03951 |
| By: | Peng Liu; Huaxia Zeng |
| Abstract: | New fairness notions in align with the merit principle are proposed for designing exchange rules. We show that, for an obviously strategy-proof, efficient and individually rational rule, an upper bound of fairness attainable is that, if two agents possess objects considered the best by all others, then at least one receives her favorite object. Notably, it is not possible to guarantee them both receiving favorites. Our results thus indicate an unambiguous trade-off between incentives and fairness in the design of exchange rules. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.05678 |
| By: | Niloufar Mirzavand Boroujeni; Krishnamurthy Iyer; William L. Cooper |
| Abstract: | We study a system composed of multiple distinct service locations that aims to convince customers to join the system by providing information to customers. We cast the system's information design problem in the framework of Bayesian persuasion and describe centralized and decentralized signaling. We provide efficient methods for computing the system's optimal centralized and decentralized signaling mechanisms and derive a performance guarantee for decentralized signaling when the locations' states are independent. The guarantee states that the probability that a customer joins under optimal decentralized signaling is bounded below by the product of a strictly positive constant and the probability that a customer joins under optimal centralized signaling. The constant depends only on the number of service locations. We provide an example that shows that the constant cannot be improved. We consider an extension to more-general objectives for the system and establish that the same guarantee continues to hold. We also extend our analysis to systems where the locations' states are correlated, and again derive a performance guarantee for decentralized signaling in that setting. For the correlated setting, we prove that the guarantee's asymptotic dependence upon the number of locations cannot be substantially improved. A comparison of our guarantees for independent locations and for correlated locations reveals the influence of dependence on the performance of decentralized signaling. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.14163 |
| By: | Modestino, Alicia Sasser (Northeastern University); Marks, Mindy (Northeastern University); Hoover, Hanna (University of Michigan); Pandit, Hitanshu (Northeastern University) |
| Abstract: | Summer Youth Employment Programs are known to have significant impacts on youth outcomes based on lotteries from oversubscribed programs. But most cities cannot use a lottery design due to heterogeneity across youth and jobs. How can programs achieve efficiency and equity under alternative assignment mechanisms? Using hiring platform data, we study youth application and employer selection behavior to explore these design challenges. We find large mismatches between the distribution of youth versus jobs leaving 10% to 25% of positions unfilled. Moreover, employers were nearly twice as likely to select white youth relative to their representation in the applicant pool. This disparity persisted when controlling for other demographics, the number and timing of applications, and job readiness. Our findings reveal that workforce development programs may perpetuate inequities in the absence of simple random assignment. Using a job matching algorithm, we show that placing just 30% of positions by lottery can improve both equity and efficiency. |
| Keywords: | youth, workforce development, summer jobs, job matching, algorithm |
| JEL: | D63 D91 I38 J13 M51 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17737 |
| By: | Henrique de Oliveira; Rohit Lamba |
| Abstract: | An analyst observes an agent take a sequence of actions. The analyst does not have access to the agent's information and ponders whether the observed actions could be justified through a rational Bayesian model with a known utility function. We show that the observed actions cannot be justified if and only if there is a single deviation argument that leaves the agent better off, regardless of the information. The result is then extended to allow for distributions over possible action sequences. Four applications are presented: monotonicity of rationalization with risk aversion, a potential rejection of the Bayesian model with observable data, feasible outcomes in dynamic information design, and partial identification of preferences without assumptions on information. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.05251 |
| By: | Evan Munro |
| Abstract: | Equilibrium effects make it challenging to evaluate the impact of an individual-level treatment on outcomes in a single market, even with data from a randomized trial. In some markets, however, a centralized mechanism allocates goods and imposes useful structure on spillovers. For a class of strategy-proof "cutoff" mechanisms, we propose an estimator for global treatment effects using individual-level data from one market, where treatment assignment is unconfounded. Algorithmically, we re-run a weighted and perturbed version of the mechanism. Under a continuum market approximation, the estimator is asymptotically normal and semi-parametrically efficient. We extend this approach to learn spillover-aware treatment rules with vanishing asymptotic regret. Empirically, adjusting for equilibrium effects notably diminishes the estimated effect of information on inequality in the Chilean school system. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.07217 |
| By: | Nir Lavee; Noam Nisan; Mallesh Pai; Max Resnick |
| Abstract: | Blockchains have block-size limits to ensure the entire cluster can keep up with the tip of the chain. These block-size limits are usually single-dimensional, but richer multidimensional constraints allow for greater throughput. The potential for performance improvements from multidimensional resource pricing has been discussed in the literature, but exactly how big those performance improvements are remains unclear. In order to identify the magnitude of additional throughput that multi-dimensional transaction fees can unlock, we introduce the concept of an $\alpha$-approximation. A constraint set $C_1$ is $\alpha$-approximated by $C_2$ if every block feasible under $C_1$ is also feasible under $C_2$ once all resource capacities are scaled by a factor of $\alpha$ (e.g., $\alpha =2$ corresponds to doubling all available resources). We show that the $\alpha$-approximation of the optimal single-dimensional gas measure corresponds to the value of a specific zero-sum game. However, the more general problem of finding the optimal $k$-dimensional approximation is NP-complete. Quantifying the additional throughput that multi-dimensional fees can provide allows blockchain designers to make informed decisions about whether the additional capacity unlocked by multidimensional constraints is worth the additional complexity they add to the protocol. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.15438 |
| By: | Dongjin Hwang; Ilwoo Hwang |
| Abstract: | We study a model of competitive information design in an oligopoly search market with heterogeneous consumer search costs. A unique class of equilibria -- upper-censorship equilibria -- emerges under intense competition. In equilibrium, firms balance competitive pressure with local monopoly power granted by search frictions. Notably, firms disclose only partial information even as the number of firms approaches infinity. The maximal informativeness of equilibrium decreases under first-order shifts in the search cost distribution, but varies non-monotonically under mean-preserving spreads. The model converges to the full-disclosure benchmark as search frictions vanish, and to the no-disclosure benchmark as search costs become homogeneous. |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2504.04659 |